What to look for in a forex broker

With the explosive population of forex trading over the past ten years, spurred on by the growth in global internet access, choice of both platform and broker have become vast. Hundred of brokers offer access to currency markets and, on the face of it, they appear to offer largely the same services. For new traders there exists a confusing world of offers, bonuses, spreads and leverage which each attempt to convince us of the suitability of the broker. The truth is that many individual traders will be attracted by one or two of these features, depending on trading preferences, startup capital and risk tolerance. Beyond this there are other considerations which make forex brokers distinct from one another.

Forex bonuses and incentives to join

Many forex brokers will offer incentives in the form of cash bonuses and additional incentives to traders who sign up and begin trading. On the one hand this is an incredibly helpful boost to the account of any new trader, but on the other it can cause problems depending on the level of trading experience that a new member has. Whilst experienced traders may amalgamate a cash bonus in to their account and begin trading as if it is their own money, using a strict risk-management strategy, the temptation for many is to treat this as free money to gamble. Similar to trading using a demo account, free cash bonuses prevent that essential real-money experience and can encourage cavalier forex trading. Although this is not a definitive rule it is worth considering for new traders who hope to trade beyond the bonus. Once this has been depleted there may only exist bad habits and low self control when it comes to trading the real deposit.

Spreads and leverage for new forex traders

Spreads are the place where brokers traditionally make their money. This is the difference between the buy and the sell price when a forex trade is placed and times several trillion transactions amounts to a substantial sum. It also accounts for the steep rise in the number of brokers as currency trading has spread to the retail traders market. In a nutshell, the closer the spread the nearer to the underlying market price your purchase will be which is a positive thing. Wide spreads mean forex trades are down a few pips before the trade has even got going. Researching brokers with consistently close spreads will therefore help all long-term trades cut costs and increase profits over time.

Leverage is one of the most enticing and powerful features of forex trading. It allows traders to command many times the amount of their deposit in one single transaction, magnifying profits but also that of losses. For inexperienced traders, more leverage is almost certainly not better and can lead to overexposure and rapid depletion of a trading account. Even for more experienced traders, it is very rare for the maximum leverage to be used on any trade and many brokers simply use this as a marketing tool to show how hugely profitable a small deposit could be.

Educational resources and learning areas

By far the most important consideration for all new traders will be to sign up to a broker that genuinely wants to work long-term with its clients. The way that this is done is to offer a multitude of free and accessible trading educational resources. Some brokers are exceptional in doing this, offering demo platforms, webinars, trading strategies and money management courses within their trading platforms. This should be the first consideration of joining any broker and one which will hugely increase the potential for long-term trading success beyond the temptations of cash offers or sky-high leverage.

 


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