When you trade Forex online, you must have a broker. Years ago, the choices were very limited, and deciding which one to use was easy. But with the explosion of the Internet, finding the best Forex broker is a little more complicated, as there are so many to choose from now. In this article, we will take a look at the things that you will need to take into consideration when looking for the best Forex broker for your situation.
When you place a Forex trade, the difference between the ask price and the bid price for a currency pair is called the spread. When you trade, your buy order is executed at the ask price and your sell order is executed at the bid price. Most Forex brokers make their money from the difference of the two. In other words, they make money off of the spread. Because of this, some Forex brokers will widen the spread in order to make more money for themselves. The spread will cut into your potential profits, as you have to pay more for the trade. You should always try to find the narrowest spread, as it is important in finding the best Forex broker for your trading business.
Fixed or Variable Spread?
When you place an order, the broker will quote a spread for your trade. It is vital to understand whether or not that spread is fixed, or variable. There are arguments for both as to which one is being used by the best Forex brokers. The truth is that it depends on the trader.
If you are worried about a pip or two, in other words a small time frame trader, then fixed spreads is going to be necessary in order to scalp the markets. However, if you do not trade news related events, then the variable spread is probably the one for you. The reason being is that the variable spread is most often the smaller of the two, except during time of low liquidity, like news announcements. Make sure you know how your broker calculates the spread before joining.
Some brokers will guarantee stop and limit orders, while other don’t. Typically the best Forex brokers do, but the true ECN environments simply can’t. If there isn’t an order there to match yours – you won’t get filled at that price. Make sure you know this ahead of time.
The platform is crucial as well when determining the best Forex broker for you. It makes sense that you open a demo account first, in order to get a feel for the platform as there are plenty of options for trading software. Make sure you know the platform well before you trade with real money. The best Forex brokers will always offer a demo account. If a broker doesn’t they should be avoided at all costs.
Mini accounts are crucial, and offered by all of the best Forex brokers. If you are just starting out, you might want to open a mini account with your broker. The minimum balance can vary, but some of them can be opened with as little as $1. The best Forex broker for you will almost certainly have this feature, as it also allows you to get very specific with risk parameters on a trade, such as risking $135.60 instead of the next rounded number. The reason is that the Mini accounts allow you to trade smaller lot sizes.
The above points are very important to consider in order to find the best Forex broker for you. Each of these points has to be considered in order to achieve success through your broker. No matter who turns out to be the best Forex broker for your situation, you will have had these questions answered in order to trade confidently.