Online forex broker is a company that helps traders by providing a trading platform where they can buy or sell various currencies. As a trader, you will use these broker’s services to access the forex market 24/5. In this manner, picking the best forex broker becomes crucial phase if you want to participate in global forex trading.
These brokers are usually compensated through the bid-ask spread of a currency pair. For example, EUR/USD bid price is 1.4613 and asks price is 1.4616. If a trader makes entry to the market at that time, he can either buy at price 1.4616 (ask) or sell at price 1.4613 (bid). In this case, the spread is 4616-4613=3 pips.
An online forex broker will apply different spread for various currencies, so make sure you check this information on their website, especially the currency pair that you have an interest in. For widely used currency pairs like EUR/CHF, GBP/USD, or EUR/USD, it is pretty common to have low spread 2-4 pips. However, other currency pairs such as EUR/CAD, GBP/CAD, or GBP/NZD have spread from 6-17 pips.
While most of best forex broker’s make their incomes through the spread, there are also brokers that charge commission fee per trade. This commission will be levied per lot. One lot is 10,000 units of currency; for instance: 10,000 unit are the same with EUR 10,000; GBP 10,000; USD 10,000; etc.
So, do you need $10,000 to be able to enter forex trading? No; the forex current market is using leverage system. A 200:1 leverage means that you only need to deposit 10,000 / 200 = $50 to trade 10,000 units or one lot. In other words, if you use a forex broker that charges $40 per lot, you will see $40 missing from your profit each time you trade.
When you choose to use an online forex broker, you will gain access to their online trading platform. This platform will give you access to live price, chart, news, put take profit or stop loss order, execute a trade, and various other resources to support your everyday trading.
Based on various testimonials, not every trader can get used to a particular trading platform. Therefore, it is an excellent idea to test it first on a demo account for at least a week or so. It is advisable to test a few trading platforms at once and see which one fit you the best. Remember to pay attention to how quick the platform executes your order.
Opening a practice account has other uses too. If you are a skilled trader and have certain strategies, you might want to test if the platform supports it or not; for instance: hedging.
Hedge a trade has bought and sell trades in the same currency open simultaneously. This method can be utilized by a trader to lock any loss trades that he has.
Example: a trader buy EUR at 1.4815, then the price dropped to 1.4785. Instead of closing the losing trade, he sells EUR for 1.4785 and thus locks the loss at 30 pips. Then he waits and see the market movements and hopes to avoid loss by closing the two positions at the right price. This strategy is very risky, and most traders will just go for the stop loss order.
So here are what to check on an online forex broker:
- How they gain their compensation; is it through spread? Or is it by spread and commission? Confirm the spread for your preferable currency pairs and if they charge commission, check the commission rate per lot.
- Test the trading platform to make sure you are comfortable with the interface, has a various resource to support your trades, execute your order in an instant, and the server doesn’t down too often.
- In case you have a certain strategy that not usual, ask the customer support if their trading platform allows it or not.
- If you are a forex robot user, check via live chat or email to make sure that they allow it. You can do this easily through the use of the live chat feature. There are some excellent robots on the market currently, and you may decide to use one of them someday, so make sure you take the one that allows it.
- Verify if they are regulated under an official financial authority like NFA or FCA UK.
Selecting the best online forex broker doesn’t have to be a complicated process; just test their platform and use the live chat feature to ask the rest of the questions.