How to choose good forex broker

Almost 90% of the investors enter currency markets as short term speculators. Most of the investors look for quick capital gains in forex. Many start forex day trading as a speculative venture. If you have made the positive decision to start forex trading, your first step should be choosing the right forex broker. This is very important. The right choice of a forex broker will greatly influence your success as a forex trader.

These days, the market is overcrowded with companies and banks offering online brokerage services to individual traders and investors to access the currency markets. It is not easy to make the right choice without a certain set of criteria. These criteria will mostly depend on the interests, preferences and means of each individual trader depending on his/her trading strategies and tactics. You may ask, what is the best way to choose the right broker? You should compose a list of questions to ask the forex broker before making a final decision. The following are some of the suggested questions that you should ask. You should ask these questions before making a final decision.

What is the amount of the interday and overnight margin? What is the corresponding leverage? Many online forex brokers offer margin between 2-5%. They provide leverage ranging from 20:1 to 100:1. Higher margin requirement means lower investment efficiency for you. Margin is the amount the broker sets aside as guarantee against your trading losses. However, beware of lower margin. It means that most of the time the forex broker will be against you as a trader and will do everything possible to prevent you from winning. You will face many trading problems with such a broker. It will become difficult for you to work under such conditions.

What is the minimum contract size offered? Now days, the standard contract size is a $100,000 lot. This contract size is quite affordable. This contract size also allows small individual investors to participate in currency speculation. It allows for reasonably effective money management with limited capital. What are the minimum deposit requirements demanded by the forex broker? It is not unusual that many new traders dont have sufficient funds to open an account. The investment and financial means of traders differ. $10,000 is the required minimum amount corresponding to the forex market conditions by good dealers. In my opinion, the optimal minimum amount is $10,000 with 2% margin requirement.

What are the terms of setting and executing stop and limit orders by the forex broker? The ideal condition should be the execution of the stop and limit orders at the fixed price. This should be regardless of the market conditions, its speed and its direction. Some forex brokers provide this type of execution. Other brokers reserve the right to fulfill an order with slippage under unsteady market conditions mostly defined by the broker themselves. The amount of slippage depends on the current state of the currency market. It can vary from a few pips to tens of pips. It is practically impossible to arbitrate the prices received from the broker during a currency transaction. The slippage creates favorable conditions for the abuse of an individual trader by the forex broker.

When choosing the right forex broker, you should find from the broker what are the spread size and its dependence on the contract size? Spread is the difference between the bid and the ask price given at any moment on the trading terminal. The smaller the spread size, the better it is for the trader. Spread is your cost of trading. Most forex brokers give spread up to 5 pips under steady market conditions. Spread up to 5 pips is reasonable and should be acceptable. Some brokers will offer spreads lower than 5 pips if you trade contracts of $500,000.

ECNs (Electronic Communications Networks) offer spreads of not more than 1-2 pips maximum. But they require initial deposit of $10,000. If you have $10,000, then its better to open an account with an ECN. The rates offered by ECNs are interbank and are far better than most of the retail forex brokers. You should look at the additional service like analytical, data, news, quotes, graphics and such offered by the forex broker. Online forex trading is quite popular now. You can monitor currency market movements by following current real time prices, graphics and even news on your laptop or PC monitor.

Does the broker provide trading software with the opportunity to manipulate, modify, and customize graphics; technical analysis using indicators and draw trend lines with support and resistance lines? This can save substantial money by eliminating the necessity of buying an expensive market quote service and analytical and charting software for conducting technical analysis. Does the broker charge commissions and other payments and dues? The most reputable forex dealers and forex brokers charge no transaction fees from their clients. Reputable dealers when transferring an open position to the following day execute the rollover operation in accordance with the current LIBOR rates. The rollover is reflected in your daily statement.

It depends on the currency pair and the direction in which the position was opened. At the moment of its transfer the next day, the client could actually win as the result of the transfer. A certain amount of interest would be added to his account just for holding the position for more than one day. This interest is the difference between the interests offered on the deposits on the two currencies in the pair. Sometimes a trader will hold two opposite positions overnight.

For example, a trader may have executed USD/CHF transaction for the total amount of $400,000 buy and $200,000 sell. Then the long position of USD/CHF amounting to $200,000 should be transferred to the next day and the corresponding interest deposited or charged to the traders account accordingly. Most forex brokers always charge the client interest for holding the position overnight regardless. They do not bother with these calculations. Many brokers will charge interest for practically non existent positions. You as a new trader should know these facts. You need to choose you dealer after due diligence.