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Choosing a reliable forex broker is crucial for your success as a forex trader. The forex market is highly competitive and involves real money, so it’s essential to work with a broker that you can trust. Here’s a guide on how to choose a reliable forex broker
What is a forex broker?
As a trader, you may use the services of an individual or an institution known as a forex broker to assist you in the purchasing and selling of various forms of foreign currency. You can think of platform as the ‘middleman’ that allows you to speculate on the value of a currency pair in the foreign exchange market without actually needing to buy any physical currencies.
What is forex trading?
Forex trading, often known as foreign exchange, is the practice of making bets on the price of one currency based on how it compares to the price of another currency (for instance, how powerful the British pound is in comparison to the US dollar). As the trader, you need a platform to speculate on because you are not actually purchasing any notes or coins directly but rather making a prediction on the value of what you think they will be worth in the future. Your brokerage is responsible for maintaining and providing access to this platform.
How does a forex brokerage account work?
Because the operation of forex brokerage accounts is slightly different based on the region in which you trade, the manner in which it will operate for you will be set by the broker that you select.
The description of the operation of a forex brokerage account that follows is as follows:
- Either an investing account or a trading account can be held in a forex brokerage account. An investing account is one in which you buy actual currencies and take full ownership of the money. A trading account is one in which you speculate on the value of currencies in the market. If you choose to trade with us, you will need to open a CFD trading account, which is something we will elaborate on in more detail later.
- Because the foreign currency market is always open, a reputable forex brokerage will get you access to the foreign exchange market around the clock, seven days a week. Trading foreign exchange (FX) is open to you with us from 5am Monday through 6am Saturday (UTC+8). Over-the-counter (OTC) transactions, as opposed to those conducted through centralized exchanges, make it possible for currency markets to remain open for such long periods of time.
- After that, you’ll have to decide which currency pair you want to trade in. You can trade more than 80 different currency pairings with us, including popular currency pairs such as GBP/USD and EUR/USD, as well as more obscure and exotic currency pairs such as USD/ZAR and AUD/CNH.
- Lots are the basic unit of trade in forex. These are the ‘batch sizes’ that are standardized for the currency pairs that can be speculated with. For instance, a conventional lot consists of 100,000 units of the base currency; however, you can also purchase the currency in lower amounts. Therefore, before you get started, you’ll need to figure out the size of the lot as well as the budget that you’re comfortable working with.
- Keep in mind that the cost is determined by more than just the quantity of lots; it also takes into account the size of your position as well as the cost of the instrument. Additionally, additional costs and fees may be incurred. You, and not a fund management, are in charge of a forex brokerage account when it comes to making trades and decisions. Therefore, you will need to monitor and analyze the market movements of the currencies you are trading on, as well as carefully monitor any open positions while also establishing alerts to ensure that you do not miss any significant price changes.
For the same reason, you’ll want to make sure that you have a solid risk management strategy in place so that you can maximize your chances of making a profit while minimizing the danger that you’ll incur a loss.
How to choose a forex broker
Because the foreign exchange market is the largest, most liquid (and frequently the most turbulent) market in the world, finding a forex broker that you can rely on is absolutely essential. When selecting a broker for foreign exchange, here are nine criteria to take into consideration:
When searching for a broker, you should make sure that your top priority is finding one who operates in complete compliance with the law. You should seek out a business partner who is honest and trustworthy because these organizations will be handling your foreign exchange operations.
IG Group is a trusted entity regulated by numerous regulators across the globe, including the FCA, BaFin, MAS, ASIC, NFA, CFTC and others who have strict regulatory requirements that govern exactly what we can do and how we must do it and also require the firms they supervise to hold client funds in accounts separate to their own. This ensures that the cash does not become IG’s property and instead stays in your possession.
The Bermuda Monetary Authority (BMA) has granted IG International Limited a license, allowing the company to engage in investment and digital asset business respectively.
Leverage and margin amounts
Your decision must take into account your access to various levels of leverage and margin amounts.
Some trading instruments have leverage as an attribute. It implies that the bulk of the size of your position is, in a sense, a loan from your broker. You put down a portion of the value of a forex trade, known as margin, and your broker puts up the balance.
It also means that although you just invest a small amount of money to open a trade, the complete value of the deal is used to determine your profits and losses. This implies that both gains and losses may significantly exceed your margin.
Leverage ratio is the ratio of your entire exposure to your margin.
Say you wish to purchase 1000 shares of a corporation at a price of $1 per share. You would need to spend 1000 x 100 cents for an exposure of $1000 (excluding any commission or other fees) in order to open a traditional trade with a stockbroker.
However, you can pay a little portion of this fee upfront by using leverage. You would only need to pay $200 to open a trade worth $1,000 if the margin percentage was 20%. However, your gains and losses would be determined using the entire $1000.
Your 1,000 shares are now worth 140 cents apiece if you decided to go long on your trade and the company’s share price increases by 40 cents. If you cancel your position, you will have earned a profit of $400, which is double the opening margin of $200.
In the other scenario, if you went long and the share price fell by 40 cents, you would have suffered a $400 loss, or double your initial investment. Therefore, there is a significant danger that your margin will be exceeded by profits or losses.
This is why it’s so important to pay attention to the leverage ratio of the forex broker you’re using. When your leverage is large, you can achieve far more profits than you otherwise might with a less quantity of capital. However, it also means that you run the chance of suffering losses that are much more than the value of your position, and if your prediction is wrong, you would lose the entire amount.
When looking for forex brokers, you may come across those with incredibly high leverage ratios. However, you should be aware that utilizing too much leverage puts your trading approach at risk of catastrophic losses.
Here are some more margin and leverage specifics on some of most popular currency pairs:
|FX pair||Retail margin||Leverage equivalent||Value per point (standard*)|
Spread and commission rate
You will also pay other fees in addition to the margin rate when you start a position. You don’t pay a commission to us when you trade forex, but you will pay for something called “the spread.”
When you open a forex deal, the spread is the difference between the buy and sell prices.
The economic state of the market heavily influences the spread quantities. The spread will widen when a market becomes more volatile in order to manage the volatility.
These are the minimum spread amounts on some of the most popular FX pairs:
|FX pair||Minimum spread amount|
The currency market is constantly active. With people, businesses, and banks transacting trillions of dollars’ worth of FX transactions every single day, it is the largest and most liquid market on the planet.
London, New York, Tokyo, and Sydney are the main financial hubs, but thousands of other currencies from nations with vastly different time zones exchange hands there every day. As a result, the FX market is a global, round-the-clock market.
It’s crucial to select a forex broker that can provide you with the most trading hours feasible because of this. For instance, a trader stationed in the UK who deals in the USD/AUD currency pair would be aware that trading in New York only begins at 12 p.m. UK time and that trading in Australia only starts at 9 p.m.
Educational tools available
Finding a forex broker online that provides a wealth of training materials and educational tools is also advantageous. Simply put, the more you understand about foreign exchange trading, the more probable it is that you will be successful in your trading endeavors, maximize your possibilities of making profits, and reduce your risks of losing money.
No matter how effective your plan is, there will inevitably be instances when you require assistance. You should pick an online trading broker who will assist you when you have questions in addition to one who has a solid platform.
This is especially important for forex traders because they often deal at odd hours on platforms that are hosted overseas. What are the customer service hours if that is the case? When you need them, will they be able to answer your questions? When selecting your broker, keep channels of communication and timely availability in mind.
When setting up your account, you can also use the client services team to get a personal tour of the platform if you’re a novice forex trader who hasn’t yet begun trading with us.
Do I need a broker for forex trading?
Yes, you do. When you trade forex, it’s always done on a platform that enables you to speculate on the prices of currency pairs. The owner of this platform (who also facilitates your transactions) is the forex broker.
When is a bad time to trade forex?
This depends on your forex broker – and what kind of times they offer. The forex market itself is open 24/7. We offer forex trading 24/5. Plus, you’ll also get weekend hours on the most popular major pairs.
Again, this will vary vastly depending on the currency pair you choose to trade on. The ‘Monday effect’ from shares trading can apply to forex, but it all depends on the markets’ hours you’re trading.
Is it good to trade forex at night?
This depends on which currency pair you’re trading, and what time of the day their respective markets are open. If you’re trading USD/JPY, for example, trading forex at night (UK time) will be very different to trading GBP/EUR at the same time.