Whether you’re just starting out on your trading journey or in the market for a new broker, it’s important to consider your trading profile when deciding on a brokerage to open an account with. This means listing your habits and needs as a trader and seeing if any potential brokers meets those needs. Are you a scalper with a need for speedy execution and low spreads? Or perhaps you’re of the Muslim faith, and require an Islamic trading account. Or maybe you wish to trade commodities in addition to Forex. These are all considerations to make before you open an account with a brokerage – here’s our guide to what to look out for.
The cost of trading: spreads, fees, and swap rates
One of the first things people look at when picking a Forex broker is the cost of trading. Brokers often make a profit through either commissions or spreads. A spread is the difference between the Buy and Sell prices quoted by a broker and can be fixed or variable. Fixed spreads are static and remains the same pip value regardless of the market’s liquidity or volatility, and are more suited to scalpers, or news traders that are looking to profit off the volatile periods of news releases. However, requotes and slippage are common with fixed spreads. This is because brokers offering fixed spreads usually operate on a market maker model – and controls the execution prices through a dealing desk.
On the other hand, a variable spread can offer a better deal in times of high liquidity (sometimes as low as Zero pips), or during periods when the market is calmer. A variable spread arising from a No Dealing Desk execution also means that traders get faster results and greater liquidity as a counterparty can come from various sources. This also reduces the need for requotes, or the frequency of slippage.
However, variable spreads can sometimes run high, and may spring surprises like setting off stops and limits during times of volatility. As a trader, it’s best to figure out the kind of broker that suits your trading style.
Outside of the spreads, Forex brokers rarely charge any extra fees during trading.
For traders that tend to hold their positions overnight, it’s important to also consider the swap rates based on whether you are earning or paying an interest. PU Prime, for example, offers competitive rates that keeps overnight fees low.
Some brokers also offer incentives for opening or funding an account. These can be bonuses on a percentage of your deposit, or even a flat bonus for just opening an account with a broker. Both help to increase your margins and act as additional capital for your trades.
Even more important than the cost of trading is whether your chosen broker offers adequate investor protection. This includes protection of your funds, and regulation by the appropriate agencies. While financial regulation differs from region to region, most top-tier authorities will, at the very least, mandate that brokers segregate client funds. This means that your money is kept separately from a broker’s own funds – and will never be used for the broker’s operational costs. This offers protection for your money in the event of any unforeseen circumstances like if your broker goes into liquidation.
In addition, some brokers like PU Prime offers an extra layer of protection through periodical audits conducted by external parties.
Regulated by the Cyprus Securities and Exchange Commission (CySec) and Seychelles Financial Services Authority (SFSA)
Services provided: Account Types, Client Support and Tools
As Forex is traded every hour of the day, most brokers will offer 24/5 support. There is much to navigate, especially for beginner traders, in the world of Forex trading. Receiving responsive support from your broker is not just invaluable when faced with technical issues, but can also provide a sense of assurance for traders. Some brokers also provide educational materials to supplement your knowledge. These can include webinars, online tutorials, or even e-books.
For the more experienced traders, you might also want to consider the kinds of tools that a potential broker offers, whether it’s the range of order types, the option for social trading, analysis tools, or a demo account.
Depending on your trading needs, another factor could also be whether a broker offers multiple account types. For example, if you trade often and in large volumes, you might want to consider a broker or account type that might charge a commission and low spreads, as opposed to no commission and higher spreads. Or perhaps you are looking to trade extra-small volumes in order to test a trading strategy – does the broker you are considering offer a Cent Account?