Forex boasts a daily trading volume of $4 trillion on average, which makes it the largest and most liquid financial market in the world. However, there is no central marketplace for foreign exchange trading. Each trader must choose a brokerage on their own. Choosing a forex broker is never easy.
Before the onset of online retail trading however, forex trading was only possible for big banks, financial institutions, funds and multinational companies, who are still the major players in the game. What has changed however nowadays is that now everyone can participate in forex trades, provided they have a broker to give them access to the forex market.
Since making a forex trade in reality means selling one currency and buying another, the broker’s role is to connect each trader with buyers and sellers for those currency pairs they are trading on. To make your trade possible, a forex broker will either match it to other traders connected to them, or transfer it to the interbank market.
Here are some tips, how you can choose a good broker.
1. Spreads, Costs And Trading Conditions
When choosing a broker, an obvious consideration is pricing or transaction costs. With cut-throat competition between the best brokers around the globe, retail investor accounts can now access ultra-tight institutional-grade pricing.
2. There are forex brokers that cook things up and trade against you.
This myth is not valid simply because it is a fact that all forex brokers work according to one business model. There may be differences in their offering, in their attempt to differentiate and stand out, but the main principle is the same. The application of this model is not preventing traders from making money, through successful trades.
3. Fees and Commissions
Amount of fees and commissions declared by a forex broker is sometimes crucial for a trader making their choice of which forex company to trade with. With some market makers it can be found that they charge no fees and no commissions. In such case they earn from spreads, so check how many pips have to be paid to the broker per trade.
4. Straight Through Processing (STP) Brokers
The second major category comprises No Dealing Desk (NDD) brokers. As the name implies, such brokerages have no dealing desks because they act as intermediaries between traders and other market participants, such as banks, hedge funds, mutual funds, other clients, and even other brokers.
5. You should stay away of all offshore companies.
The offshore licensing and registration of forex brokerages is a hot trend in the industry, mainly caused by increasing pressure on brokers from regulatory authorities in non-offshore jurisdictions, coupled with the more favourable tax and other conditions brokers can benefit from when setting up their business in offshore locations. To find out more about the how’s and why’s of this, you can read our enlightening, pertinent article on How to Obtain An Offshore Forex Broker License when Setting up a Forex brokerage.
6. Bonuses and Promotions
Bonuses and promotions are sometimes a key factor determining the trader’s choice of a forex broker. These days those brokerage firms are more popular and attractive which not only offer good trading conditions, but also have extra incentives.
You can learn more about forex trading at forum.forex
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