Have you ever bought a car without taking it for a test drive, first? We certainly hope not! Likewise, it is recommended to establish a practice account with any broker you are considering to use as your primary broker. Almost all brokers now offer practice accounts which let you get a feel for the broker before committing any money. Avoid brokers altogether if they don’t offer practice accounts and aim for a broker that offers practice accounts without time restrictions. Use your time on the practice account to make mistakes, call Customer Service about various issues and to get a general feel for how well the broker works for you. A note of caution: With many brokers, the functionality will be slightly different on a practice account than it would be on a live account. This is to be expected – WITHIN REASON. If the practice account fails miserably, the live account is NOT likely to be far superior.
Brokers should be evaluated just as one would evaluate a bank before setting up a large savings account – you are going to give the broker your money, right!? Complete your due diligence when researching the legal legitimacy and financial stability of the broker.
Brokers earn their keep through the fees traders pay – understand these fees! A significant source of revenue (for your broker) and operating expense (for you – the trader) will be the spread – the price difference between the bid and ask prices. Know how your broker handles spreads:
Rollover – A trader must also determine how a broker handles rollover debits and credits. Some brokers both debit and credit a trader’s account for rollover, other brokers only debit your account (so you won’t earn credit for carry trades!).
Other fees/expenses – Make sure you understand ALL potential fees your broker could charge you!
Leverage
Another important factor will be the degree of leverage your broker offers. Some brokers only offer a conservative amount of leverage – say between 2:1 and 10:1. Other brokers will allow more aggressive trading, with leverage up to 400:1.
For this factor, there is no “best” or “better” option – it’s simply a matter of making sure your broker offers what you NEED. If you choose to employ a trading strategy that requires 200:1 leverage – make sure your broker offers it!
Order Execution
Attempt to determine how well your chosen broker executes orders. This is difficult to determine by asking a company representative questions – they will all say their order execution is superior. Instead, get a feel for how quickly orders are processed. What is the average “slippage” between the price you requested and the price you get filled on?
Charting and Education
The charting services, as well as the educational services, your broker provides will aid in your mastery of the Forex market. When choosing a broker, consider the functionality of the charting package they offer. Sure, you do have the option to choose one broker for order execution and a separate stand-alone charting package, but most traders prefer to utilize a broker that has a superior charting package. Likewise, most brokers offer a variety of educational tools to assist in a trader’s assessment of the Forex market.
Customer Service and Support
Like all businesses – brokers depend on their customers! Make sure the broker you choose values you as much as they should!
Making the Call
In the end, a trader won’t know everything about a broker before making the ultimate commitment. However, knowing the right questions to ask and doing the necessary research will increase your chances of choosing the broker that is best for you! We have also put together reviews of some of the most popular forex brokers out there to help make this decision easier for you.