In general, there are three types of structures forex brokers use to generate income and all revolve around their spread. Fixed, variable and a commission based on the percentage of the spread all determine if the broker will be worth going through based on your trade style. Before you open an account you should compare the most popolar ones, at EarlyBull is an up to date forex broker comparison.
What kind of support should I expect from a forex broker?
Provided you have at least a standard account, there is always help available. Major brokers like XM.COM have support seven days a week to match the market that never sleeps. Before settling on one, test out their support. Reach out to their online support and their phone support to determine how quickly you can reach a live person. This will give you a much better sense of what type of customer service to expect in relation to how they respond, their knowledgeability and their capability in handling the myriad of different issues that can occur.
Also, if you speak another language, check the website to see what languages they offer. Sometimes this will mean reaching out to a branch in another country. Should the information not be provided, call the company to determine their policies and communication is one of the most important aspects of trading. If you have a standard account, know that you will have access to many more options. If you plan on going with a mini, still test out the available support system. The last thing you want is to sign up with a broker who puts all of their resources toward helping standard accounts and leaves relatively nothing to those with smaller options.
How are fees, funding and withdrawal done with a forex broker?
All legitimate brokers will have a detailed, up-to-date listing of their commission policy and fee schedule. Their money is made from the spreads and commissions although some claim they charge no commission fees as their earnings are taken from wider spreads. Be careful with these, though, as it is harder to make much of a profit with wider spreads. All other fees, such as those tied to withdrawals or paper statements, should be clearly listed as well.
Funding, on the other hand, is done through a variety of methods. The more popular include wire transfers, credit cards or electronic payments through services like PayPal. Since all are handled online, they provide you a quick and secure way to transfer money in a relatively short amount of time. Checks can be accepted but traders must wait for them to be cleared by the broker before they can begin trading.
Withdrawals, like funding, can be done through a variety of means. The best systems have an easy, quick way for money to be transferred with the process clearly outlined on the website. Should it be made to a credit card, it generally must be the same card that was used to fund the account and the amount withdrawn cannot exceed the amount that was paid with the card in the first place. Other bits of fine print, like bank fees for wire transfers, should be visible, albeit probably not as visible as the more tantalizing options they offer.
What should you avoid when choosing a broker?
While there are many aspects that can be overlooked for the sake of getting certain perks, two things to always avoid are sniping and hunting. The act is when brokers buy or sell near the amounts you designate as buy and sell points; they don’t actually wait for those numbers to be hit. This then increases their profits. The only way to catch this is by talking to other traders. With no blacklist listing those guilty of this practice, only the community carries the information.
Another issue to keep alert about is what is known as price shading. Say orders come in that indicate one buy is much more tantalizing than a sell. The broker takes this information and adjusts the price of the buy, making it just a little more expensive than it’s supposed to be, leading to increased profits. The best way to detect this is to have two accounts. One should have straight-through processing while the other goes through a dealing desk. This gives you the capability to see if the broker is continually on the high side of buying or the low side of selling.