How to Choose a Forex Broker as an Experienced Trader
Small differences in forex broker services have a marginal effect on beginners but can make a huge difference to trading results for experienced traders. With so many options out there, it can be difficult to know which one is best for you and your trading needs.
In this guide, we’ll discuss all you need to know about choosing a forex broker and how to make sure you pick the right one for you.
Factors to Consider Before Choosing a Broker as an Experienced Trader
1 Regulatory Compliance
Regulatory compliance is one of the most important criteria for any type of trader when selecting a forex broker. Extra experience in the market is no reason to try your luck with an unregulated broker because it means putting your depicted money at much greater risk. Regulatory bodies are responsible for ensuring that brokers comply with industry standards and provide fair trading conditions for their customers.
Popular regulatory bodies include the Financial Conduct Authority (FCA) in the United Kingdom, the Australian Securities and Investments Commission (ASIC) in Australia, and the Securities and Exchange Commission (SEC) in the United States.
How to Check if a Broker is Regulated
A good-looking website isn’t a testament to a broker’s regulatory standing. To check if a forex broker is regulated, you should always begin by verifying their legal documentation, such as their terms and conditions or license agreement. You may also find it useful to consult a regulatory body’s website or search for its name in conjunction with the words “regulatory action” or “penalties”.
Also, if you are serious about trading, it could be worthwhile to hire a lawyer or another professiona to check the T&Cs of the broker.
2 The Broker’s Business Model
Another key factor to consider when choosing a forex broker is the type of business model they offer. There are four basic types:
- Market Makers
- Electronic Communication Networks (ECN)
- Direct Market Access (DMA)
- Straight Through Processing (STP) brokers
Market Makers
Market makers make a market in the currency pairs they offer and are willing to buy and sell them at fixed prices. They provide liquidity to the markets by setting bid and ask prices, which then allows traders to take positions with them. As such, the spread of a currency pair is usually much lower with this type of broker than with other types.
ECNs
Electronic Communication Networks allow forex traders to trade directly with each other without having to go through a middleman. This means that traders can usually access better pricing due to more competitive spreads, as well as faster execution speeds since trades are not subject to latency issues or price manipulation. ECNs also allow for larger orders and greater anonymity, making them a popular choice for experienced traders.
Key To Markets was voted Top Forex ECN Provider in 2022 and 2021 by the Global Forex Awards.
DMA Brokers
Direct Market Access brokers provide access to the interbank markets, allowing traders to bypass intermediaries and trade with greater liquidity and speed. This type of broker offers tighter spreads, lower commissions, and better execution speeds than other types of brokers. However, it also means that traders will be responsible for monitoring their positions more closely as they might have less protection from market manipulation.
STP Brokers
Straight Through Processing brokers provide instant order execution with no dealing desk intervention, meaning that trades are sent directly to the liquidity providers without passing through any intermediary. STP brokers usually offer tight spreads and low commissions but may be less transparent about their relationship and financial arrangements with liquidity providers.
Which is the Best?
Each type has its own pros and cons, so it’s important to do some research before making a decision.
Market Makers tend to offer lower spreads but run the risk of more trade intervention to the benefit of the broker and to the detriment of their clients.
ECNs offer competitive prices and fast execution speeds alongside commissions. This model means less control over liquidity sources, which means raw spreads will narrow and widen according to real market conditions.
DMA brokers provide access to the interbank markets with low spreads and no dealing desk intervention, although traders will need to monitor their positions more closely.
STP brokers usually offer tight spreads but may lack in business transparency.
3 Tradable Assets
More often than not, brokers have different asset offerings. Experienced traders should pay attention to the range of assets that the broker offers, as they may be interested in trading multiple asset classes such as currencies, commodities, stocks, and indices. Furthermore, some brokers may also offer access to exotic options and other derivatives.
4 Trading Platforms
The last factor to consider when choosing a forex broker is the trading platform itself. Ensure your chosen broker has an easy-to-use platform with all the features and tools you need for successful trading. Some platforms are more user-friendly than others; while some have advanced charting capabilities or automated trade execution features (such as Expert Advisors). You should also take into consideration any fees associated with using a particular platform before making your final decision.
5 Execution Speed and Slippage
Execution speed is of utmost importance to experienced traders, as it can determine the success or failure of a trade. Delayed orders can lead to missed opportunities, so make sure the broker you choose offers fast and efficient order execution with minimal slippage. Slippage is the difference between the expected price of a trade and the actual price it was executed at, and can often have an impact on profits. Therefore, having access to a broker with fast execution speeds and low slippage is essential for experienced traders.
6 Algorithmic and Copytrading Features
Some brokers now offer algorithmic trading features in their platforms, allowing traders to automate their strategies without spending too much time monitoring the markets. This type of feature is particularly useful for day traders who are looking to maximize their potential returns from short-term trades. If you’re someone who trades with expert advisors or automated scripts, you should make sure your chosen broker supports such features. Additionally, some brokers may offer copytrading services which allow traders to copy the strategies of more experienced traders and benefit from their knowledge.
7 Leverage and Margin Requirements
Most forex brokers offer leverage up to 1:500, although some may go even higher. Experienced traders usually prefer high leverage as it increases their potential profits when trading volatile markets. However, they need to be aware of the risks associated with using too much leverage – especially when trading with margin requirements. Before making a final decision about which forex broker to go with, check what type of leverage is being offered and how much margin is required for each trade or asset.
8 Trading & Non-trading Fees
Trading fees include the spread (the difference between the bid and ask price) and any commissions charged by the broker. Spreads can vary depending on the asset being traded, so make sure to check them before signing up with a broker. Additionally, some brokers may charge additional fees for certain services or features such as inactivity fees, withdrawal and deposit fees, etc. Make sure you read all the terms and conditions carefully to ensure that you’re not caught off guard by any unexpected charges.
Final Thoughts
Choosing a forex broker can be a difficult decision, especially if you’re an experienced trader. It’s important to take into consideration all of the factors we’ve discussed above – from tradable assets and trading platforms to execution speed and non-trading fees – before making your final choice. Doing so will help ensure that you choose the best forex broker for your needs and trading style.
FAQs
1 What makes a good forex broker?
While the answer to this question will vary from trader to trader, some key factors that make a good forex broker include reliable customer support, excellent trading platforms, low fees and commissions, competitive spreads and leverage, fast order execution with minimal slippage, as well as various trading tools and features.
2 Which type of forex broker is best?
The best type of forex broker will depend on your needs and preferences as a trader. Different brokers specialize in different types of trades, so it’s important to find one that fits your needs perfectly.
3 How do I vet a forex broker?
You should always read reviews from other traders before signing up with any broker. Additionally, you should also check the website of regulatory agencies.
