Selecting an FX broker is an important decision. The right broker can act as a strong backbone for a trader, providing the necessary tools and support required for success. We are all unique traders, and as such we may well prioritize different factors – however, at a bare minimum we want to ensure a broker is well regulated, efficient, supportive and that our money remains safe in their hands.
In this article we’ll analyse the main questions every new trader should ask before signing up with a prospective FX broker.
Questions To Ask Before Signing Up With An FX Broker
What FX Account Security & Regulation Do You Fall Under? First, we need to be sure that our funds are secure. Different countries have different requirements from FX brokers, so you will want to find out just how safe your money is. A UK broker falls under the protective scrutiny of the Financial Services Authority (FSA) – it means that your funds are protected in case the broker goes bust.
Are My Funds Ring-fenced From Broker Operating Funds? Ideally you want a broker who keeps your funds totally separate from the funds used to run their business. This means your money is less likely to disappear in the event of the company going under. Another security question is to ask if your funds are insured against activities such as fraud and theft.
Do You Offer Demo Account Functionality. Increasingly, top FX brokers offer a dummy or demo account where the trader can practice trading real market conditions with imaginary money. Many new traders find this a good way to get their mistakes out of the way, and only begin trading with their real equity once their dummy accounts are making profit consistently.
Do You Offer MT4 Compatibility? The MetaTrader4 platform is the most popular free trading software available. Countless FX traders use it, and so an increasing number of FX brokers have started offering compatibility with their own systems and accounts. If you opt to go with the brokers own bespoke trading platform, ensure there is a good functionality to analyse market data – including a wide range of technical analysis tools. You should also be able to execute trades directly from your MT4 or the analysis platform the broker offers. Finally, ask how easily you can integrate your own bespoke trading system with that of the broker – the availability of an Application Programming Interface (API) will enable you to do this.
How Efficient Is Your Order Execution? Scalpers in particular will need to ensure that slippage is kept to a minimum, and that orders are executed in a timely fashion. Not all brokers are equal in this regard, and keeping an ear to the ground and asking other traders for their recommendations can help you pick a suitably efficient broker.
What Capital Investment Must I Make? More FX brokers are now offering a variety of accounts to cater to all shapes and sizes of traders. It is now possible to trade on high leverage with a mini or micro account, so long as you choose a broker that offers this function. If you’re starting with only a few hundred dollars, you’ll need to open a high leverage micro lot account in order to be able to trade with any potency.
What Are Your Pip Spreads Like? Spreads represent the biggest variable costs in doing business as a trader. Therefore it is crucial to find an FX broker that offers attractive pip spreads, especially in those currency pairs that you envisage trading in the most. Ask also if spreads are fixed or variable – sometimes, with variable spreads, the spread can get excruciatingly wide during key moments such as news releases.
Do You Offer A Sign Up Bonus? As FX brokers scrap for your custom, more and more have been known to offer sign up bonuses – they will add a certain amount of funding to your account which effectively allows you to have more open positions on higher leverage accounts.
By knowing which factors are the most important to you, and asking all the above questions you’ll be in a strong position to narrow your FX broker choice to a good few candidates.
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