5 Considerations Before Choosing An Online Forex Retail Broker.
. Connection stability of the brokers’ trading platform.
. The leverage offered.
. The trading lots or the amount cost per pips.
. Customer service of the brokerage firm.
. Reliability and credibility of the firm.
The size of currency offered
Everyone probably heard of a “standard lot”. A standard lot is 100,000 units of a currency. Before I go any further, we must catch the concept of a “pip”. Pip is a short acronym from ‘percentage in point’. It is generally the forth decimal place in a currency amount.
For example, if EUR/USD is quoted at 1.5501 and it moves to 1.5502, it has increased by 1 pip. The value of 1 pip is calculated by the size of the lot that is traded. So, for the example listed, if you buy a standard lot at 1.5501 and it moves to 1.5502, it has increased by 1 pip, hence you gain $10 or (100,000 x 0.0001).
Most online forex brokers offer mini lots which are 10,000 units, so, we can trade at $1 per pip ( 10,000 x 0.0001).
Of course most online brokers offer the capability to trade at 1,000 units which is 0.01 mini lots. For beginner, it is much more affordable to trade at $0.10 per pip.
If you want to trade with little amount of money, find a broker that offers mini-lots. Some brokers indeed offer mini-lots, BUT they cap the maximum possible amount of deposit in your account which is not honest in my notion. Depending on the broker, it may vary. Since most of the brokers do not cap the capital allowed, you just have to take note of it when choosing a broker.
Choose a broker base on the lots they offered, whether you can afford it.
The leverage offered
The higher the leverage offered by the broker, the more you can trade with a fix amount of margin. For example, for 100: 1 leverage, a trader with $10,000 account balance execute a steal order of 1 standard lot. With 100:1 leverage or 1%, the margin deposit will be $1000, leaving the legend balance at $9000. ( The account balance is just a given scenario. The amount of balance doesn’t affect the amount of margin deposit.)
With a 400:1 leverage or 0.25%, the margin deposit is $250, leaving the account balance at $9750.
There is something to sight here, higher leverage means same amount of lots with less margin deposit required.
Typically, a trader who knows money management will have no problem with higher leverage because he will ensure that his account will never reach a margin call. However for someone who is new without any Money Management skills and probably not knowing what is a margin call or how a leverage system will affect him, try out a demo trade platform to experience and understand what leverage is really all about.
Reliability and Credibility of the firm
When the first atch of online brokers emerge, there are a lot of ‘bucket shops’, frauds and scams. Some market makers really go against traders. However, situations are getting better due to many business reasons.
Watchdog agencies are set up to oversees the trading of futures. For example, the Commodity Futures Trading Commission(CFTC) in the United States is a Federal agency. One of their mission is to protect market users and the public from fraud, manipulation and abusive practices.
Procure out if the online broker is registered with any similar kind of agencies or associations that can create some sorts of credibility. Another association is the National Futures Association(NFA) to take note. You can check their websites for informations about the online brokers that are registered with them.
However, even so, traders still complain about some registered online brokers having bad practices. Therefore, you can check on online forums to see the public’s opinions and comments about the online brokers.
Customer Service
The best online brokers offer dealing befriend over the phone. Some offer online ‘live chat’ support, for example, Oanda. Most brokers now offer dealing succor over the phone and to construct determined you choose the just broker for yourself, its best to call them and talk to their personnels.
Different nationals have different language accents. Be sure you can understand them. While calling, is the phone line always engaged?
One important thing to note, I am referring to the dealing desk support here, not their sales department.
Connection Stability
Choosing the right platform with a stable server connectivity is utmost important. Most of the brokerage have a stable connectivity, meaning no downtime on their side. Most of the problem occurs with our internet connection, our internet providers and firewall setting.
As an active trader, a minute of internet disruption while actively trading is very critical. Anything crucial can happen within a short time frame.Choose an internet plan with no downtime on weekdays. A connection speed of 1 mbps is sufficient. If your residence doesn’t have a internet provider that fulfil the requirements, do not get upset as it is a common problem with internet connection (Those available to the public). However, some brokerage firms provide dealing supports over the phone which you can execute a trade if there are internet failure or no access to internet.
4 steps we can enforce to reduce problems with internet connectivity.
- Use a wired connection instead of wireless if possible. Wireless issues are usually because of waves interference of the same spectrum. Devices like mobile phones and microwave may be the cause.
- Dedicate a computer to trading and not surfing the webs to download files from non-trustworthy sources to prevent any chance of being infected with virus or spyware or malware which can slow down internet connection and cause other problems.
- It is imperative to have an Antivirus software or other security programs installed. It is even more important to keep them updated. This is to prevent ciruses, malwares or spywares from hacking into your computer that can cause internet problems as well as other important reasons like stealing your trading account and other sensitive informations.
- Double check your firewall setting to make sure a connection to the brokerage server is allowed. (By default, this should be fine.)
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Filed under Forex Trading by on Jan 19th, 2012. 