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Guide: How to Choose a Forex Broker

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Xtrade offering the best in online CFD trading and online forex trading. Enjoy the Xtrade investment portal to satisfy your investment requirements: all leading markets, seamless cross-platform access and advanced trading tools to help you trade your best. Selecting the right forex broker for your needs may be challenging. We hope this ‘how to choose a broker’ guide, will assist you in making the right decision.

Things to Consider When Choosing a Broker

Selecting the right forex broker for your needs may be challenging. We hope this ‘how to choose a broker’ guide, will assist you in making the right decision.

The No Dealing Desk system on the other hand offsets positions automatically and then transmits them to the interbank market. Brokers working through a Dealing Desk system do not work directly with market liquidity providers, therefore only one liquidity provider remains in the equation, and that gives birth to a fundamental conflict of interest. An ECN broker on the other hand, offers its traders direct access to the other market participants through an Electronic Communications Network.

The business model of an ECN broker is an entirely fair one, as it eliminates a major conflict of interest: Another advantage of the ECN is that because of the lower spreads it offers, such brokers can charge a fixed commission on every transaction. However, you should not see ECN brokers as a panacea. Brokerage fees are fees that the broker charges for the services it offers, which are services focused on facilitating transactions between buyers and sellers.

The amount of these fees depends on the broker type, and the type of service to which the trader signs up. For the purposes of retail traders, the situation is best summarized by saying the Dealing Desk Brokers charge spreads only, while ECN Brokers charge spreads as well as commissions.

The key difference between fees and commissions that all traders need to understand, is that fees represent a flat charge, while commissions vary depending on the delivered financial product and the size of the transaction. Full service brokers offer all sorts of additional perks and premium features, some of which are indeed extremely useful.

Such services do cost extra though. In this respect, what you should be looking for is a broker who includes as many premium services as possible, as cheaply as possible. In the premium service category, we have features like advice and research covering a wide range of traded assets, retirement advice, tax planning etc. You need to carefully weigh whether you need such services or not.

If you're only looking to execute trades, there's no point in getting embroiled in any premium-service intricacies. Discount is probably the way to go then. Another factor to consider is daily rollover. The daily rollover is interest credited or debited to the entity holding a Forex position overnight, depending on the relative interest rates of the currencies involved in the trade.

In such cases the broker will consider which national currency the trader bought relative to the other national currency of the pair. If the interest-rate difference favors the bought currency, the trader will have rollover interest credited: If it's the other way around, the interest will be debited.

The problem is that most brokers make sure their clients pay for holding most positions overnight, and there is nothing to stop them doing this beyond the true market cost. Most brokers roll over open positions automatically. It is important to know that the rollover interest whether it's debited or credited is calculated on the full amount involved in the trade and not on the margin alone.

Another important thing regarding the rollover interest is that it represents a separate revenue stream from the capital gains and as such, it will be taxed separately too, as interest income. Through a margin account, the investor essentially borrows from the broker, with the intention of controlling larger positions than he'd be able to control based solely on his own invested capital.

There are special margin accounts that traders can use for this purpose. Margin accounts come with their own risks, and special operating procedures meant to reduce risk for the trader as well as for the broker. The difference between margin and leverage is simple. The leverage is the factor by which the deposit is multiplied to reach the maximum trade value: The margin is simply the amount of deposit required as a percentage of the maximum trade value. It is just the flip side of the earlier calculation.

The initial deposit is the first deposit a trader makes with a broker. This deposit may be subject to special rewards, such as bonuses. Bonuses and promotions are marketing tools used by the broker to "sweeten" its offer, and thus to attract more business. You might want to consider whether a really top-quality broker would feel the need to offer such incentives. Customer service is very important for new traders and experienced investors alike.

Whenever one runs into any sort of trouble with his or her broker, it is the duty of the customer service agent to iron everything out. As such, the expertise, skills and availability of the customer service staff should be a factor within the broker selection balance. Funds deposited into trader accounts through third party checks typically take some time to clear.

Once they do, they become "available". Availability hinges on the bank from where the check originates, and the availability schedule of the broker.

The trading platform is the gate between the retail trader and the markets. It is also the tool through which the trader performs his trading.

A proper, simple, fast and user-friendly trading platform is critical in trading successfully. Being able to make deposits and to withdraw money from your broker quickly and easily is highly important. This all depends on the type of withdrawal and deposit options your broker supports. The selection of these payment solutions needs to be as large and as diverse as possible.

It is also a good idea to check the withdrawal time, as many traders complain that it can take up to a week to withdraw, when they wanted their funds available quicker.

Obviously, the smaller this amount is, the better it is for the trader. In the context of Forex trading, an instrument is defined as a tradable asset, and any asset underlying a derivative.

Your choice of broker should be influenced by the type of trader you are and by how much money you are going to deposit. No single broker is good for all traders, so determining your trading style before you start trading is always a wise decision.

As it has been iterated several times in the guide above, picking the right broker exerts massive influence on how successful your trading venture will be. No detail should be left to chance. You need a well-regulated broker, where your money is safe, one that features a user-friendly trading platform , with tight spreads and fees, and which suits your trading style.

Brokerage selection is a time-consuming task, but a necessary time investment into your eventual success as a Forex trader. How to Choose a Forex Broker With hundreds of Forex brokers to choose from, selecting the right one can be both challenging and time consuming. This website uses cookies. By continuing to use this website you agree to our use of cookies. Read our Privacy Policy. Cryptocurrency CFD trading is not appropriate for all investors.

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Once you have taken these precautions, you can look at what your potential brokers offer in terms of range of available assets to trade, spreads and commissions, overnight financing charges, and speed and reliability of trade execution — and make your choice accordingly. The inherent risks associated with this style of trading are obvious.

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Brokerage fees are fees that the broker charges for the services it offers, which are services focused on facilitating transactions between buyers and sellers.

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