5 Factors to Consider Before Choosing a Forex Broker

Forex brokers provide trading platforms for forex traders and investors to exchange different currencies seamlessly. Many platforms are available but choosing the right one can be daunting. Whether you’re a new or experienced trader, your broker can influence your success and results. From the trading fees to the tradable instruments, the trading platform largely determines how your trades are executed and managed. Here are five things you should look out for in a forex broker. 

1 Regulatory Compliance

The regulatory compliance of your trading platform is one of the essential things to look out for. Every country or region has a regulatory authority that seeks to monitor the activities of brokers and ensure they adopt the best practices while dealing with their clients. These bodies create rules and regulations that must be followed with a view to protecting the integrity of the broker and the interest of traders that use the broker’s services. 

A trading platform like www.oanda.com is regulated, and if you have any disputes with any regulated broker, you can rest assured that your interests will be protected. Trading on an unregulated platform can put your trading capital at risk. Before choosing a forex broker, ensure that the platform is regulated by the appropriate authorities in your jurisdiction.

2 Trading Commission and Fees

Trading fees and commissions vary amongst brokers. These fees may be swap fees or commission charges to execute a trade order. A swap fee is an overnight interest added or deducted for holding an open position overnight. This swap fee can be a recurrent one, but most brokers offer swap-free accounts. 

Commissions are fees charged by forex brokers for different reasons, primarily for opening or closing a trade order. They are fees charged for the execution of a trade. Most brokers would charge a fee for every lot or mini lot you trade.  Before choosing a brokerage platform, ensure that it has favourable commission and swap fees. 

3 Spread 

Spread is the difference between the bid and ask price of a currency pair. It is influenced by lots of factors, including the nature of the currency pair, the trading session and the liquidity of your broker. It is advisable to choose brokers with low spreads because this facilitates the execution and management of hour trades. If you’re a scalper, low spread increases the accuracy of your trade entries and reduces. It helps you make the most of your strategy and avoid unnecessary fees. Some brokers offer zero and raw spread accounts. If your trading strategy is significantly influenced by spreads, you can choose a broker with various options in terms of the spreads provided. 

4 Variety of Currency Pairs

There are three types of currency pairs available in the forex market; 

• Major Pairs

These currency pairs contain the US dollar paired with a currency from a developed economy. These are highly liquid pairs because the presence of the US dollar makes them highly traded and liquid, with a large number of market participants. Examples include USD/CAD, GBP/USD

• Minor Pairs

Minor currency pairs are also known as crosses. These pairs contain currencies of developed economies, excluding the US dollar. Examples Include NZD/JPY and EUR/GBP. 

• Exotic Pairs

Exotic currency pairs contain currencies from developed economies paired with currencies from emerging economies. Examples include; EUR/NOK and USD/ZAR. 

Before choosing a forex broker, make sure the currency pairs you trade are available on that platform. Some brokers don’t allow the trading of exotic pairs, so make sure to do your research before making any decisions. 

5 Leverage and Margin Requirements

Leveraged trading involves using borrowed capital to trade larger forex trades than your capital would ordinarily allow. This increases the purchasing power of your capital and helps you compound your capital quickly. A leverage of up to 200:1 means that every $1 in your trading account has a buying power of $200. Forex brokers provide different leverages, and the leverage you should decide to use is whichever one meets your trading needs. 

The Margin is the amount you must deposit to your brokerage account before you can open a trade. It’s usually a percentage or fraction of the amount of the trade position you opened.