The growth of the Internet and the technological developments associated with it has contributed a great deal in popularizing online retail forex trading. However, this has also resulted in the mushrooming of forex brokers that offer online forex trading platforms. As is the case with everything in life, there are good as well as bad forex brokers out there in the market. If you consider forex trading as a means to achieve your financial goals, then it is important that you work with the best forex trading company, but to choose one you need to identify a few top forex companies and evaluate the features offered by each one of them. This is to ensure that you end up with one that best suits your needs. Here are 10 key factors that you should consider for shortlisting a few top forex companies.
Undoubtedly, this is the first aspect that you should take into consideration. A regulated forex company will be adequately capitalized to manage trading losses, follow fair trading practices and keep clients’ money in segregated and secure accounts. It is highly recommended that you choose a regulated broker to work with. Top forex companies often operate under the regulatory purview of authorities.
In most of the developed and developing countries, regulatory framework to oversee the operations of forex brokers is in place. However, the standards are different in each country. Top forex companies always often register and obtain licenses from the countries in which they operate. These companies provide relevant information regarding this on their websites. You can always verify whether the information provided is genuine by visiting the concerned regulator’s website.
Regulation in the US
In the US, strict standards are enforced when it comes to forex trading. The National Futures Association and Commodity Futures Trading Commission are the two bodies that oversee the operations of forex companies. In order to set a forex trading company in the US, the capital requirement specified is $20 million. Further, a regulated forex trading company in the US can only offer up to 50:1 leverage on major currency pairs and up to 20:1 leverage on minor currency pairs. Additionally, US forex brokers cannot accept deposits through credit cards or offer Contracts for Difference (CFDs) for trading.
Regulation in Europe
Regulation of forex brokers operating within Europe was regularized in 2004, meaning companies regulated in one jurisdiction can operate in other EU countries as well. They are not required to obtain separate licenses though each country in the Union has an individual regulatory authority. In Europe, forex brokers are allowed to offer a leverage of 200:1, or even more, and CFDs for trading. The Cyprus Securities and Exchange Commission is one of the most broker friendly regulators in the EU.
Regulation in Other Markets
Many countries still do not have a regulatory framework for forex trading. In Israel, the framework was put in place only last year. Further, the extent of regulation varies from one country to another. Japan imposes strict regulation, but regulation is relatively weak in countries like Malta, Belize, Seychelles, the British Virgin Islands and St. Vincent.
You need to provide personal information such as copy of your passport and/or utility bills and bank account details even if you are opening a trading account with one of the top forex companies. This is a regulatory requirement. Therefore, you will have to ensure that the forex broker you are planning to work with follows good Internet security practices. Otherwise, your personal and financial data may be stolen, putting you at the risk of disrupting your trading activity and identity theft.
When it comes to security, the aspects to be checked are:
Reputation of the Internet security firm engaged by the forex company
Whether the broker has installed SSL encryption
Whether the broker has implemented the Two-Factor Authentication feature
#3: Execution of Trades
If your goal is to earn money through forex trading, then it is important that you work with a forex company that fills your orders at the best rates at the right time. Good trade execution practice followed by the broker goes a long way in improving your profits. So, you should be clear as to which type of broker you want to work with: a Dealing Desk broker (Market Maker) or Straight Through Processing (STP) broker.
Dealing Desk Broker
Market makers act as your direct counterparty, taking the other side of your trades. Your gain will be their loss and vice versa. They are not working against you, but this is their business model. This type of broker makes rates available to the clients and, therefore, they often provide fixed spreads.
These brokers route your orders to the Interbank market consisting of financial institutions such as banks, mutual funds and hedge funds, among others. STP brokers add a few fractional pips to the spreads in the Interbank market as their commission. Typically, these brokers provide floating spreads. Some of the STP brokers allow you to interact with other orders in an Electronic Communication Network (ECN) and charge commissions instead of spreads.
With regard to execution of trades, other aspects to be considered by you when evaluating top forex companies include the following:
Re-quotes policy of the broker: Re-quotes can cause you to lose profits or prevent you from reducing losses. It is always better to work with a company that has a clear no re-quotes policy.
Guaranteed stop losses: A stop loss is a risk management technique. You should look for brokers that guarantee trade execution at the stop-loss and profit levels set by you.
Negative balance protection: Working with brokers that ensure negative balance protection enables you to trade with the confidence that you will not lose more money that you have in your account.
#4: Products Offered
Most top forex companies offer not only currencies (both major and minor pairs), but also other products for trading such as commodities, stocks, indices, bonds, ETFs, precious metals and Bitcoin, among others. However, the products offered by one broker may not be the same as that offered by another. Therefore, you should pay close attention to the product portfolio of brokers to ensure that they are offering those that cater to your needs.
#5: Commissions, Spreads and Fees
Trading costs can impact your profitability. A difference of one or two pips can multiply over time. Spreads are the brokers’ primary source of revenue. Tighter spreads are more beneficial to you. Spreads may be fixed or variable (floating). Most forex companies do not charge any commissions. In addition to spreads and commission, some brokers charge withdrawal, deposit, credit card, wire transfer, inactivity and account closing fees.
#6: Trading Platform
The top forex companies will offer you a state of-the-art trading platform that is user-friendly and intuitive. It will also have all the features and tools that you as a forex trader would require to place successful trades. The most popular trading platforms also allow demo accounts through which you can try and place dummy trades before stepping into real-time trading.
Metatrader 4 is one of the most popular trading platforms that top forex companies offer for their clients. It is a highly customizable platform for experienced traders. The latency period is low and you will be able to execute orders with the shortest delay possible. The trading platform also has a number of charting tools and back-test facilities. The platform also allows for integration with other third party technical analysis tools and expert advisor algorithmic trading. Specific versions of Metatrader also allow you to switch between multiple accounts and trade from them. The base Metatrader version is Windows based but some brokers also offer browser-based and Mac versions of the trading platform.
Many forex brokers also provide web-based versions of the trading platform and you can trade using a browser. There is no need to download any software. These are particularly useful if you do not have access to your PC during trading hours. Most of these versions have only the basic trading and charting tools and are not feature-rich. If you are a newbie trader, then the web version is more user- friendly.
Social trading platforms that offer social trading experiences are becoming increasingly popular. Using these you will be able to watch others trade and even copy successful trades. The best forex trading company of today offers mobile based trading options for its clients so that they can trade while on the move. Metatrader mobile versions are available for iOS, Android and Windows phones. It can also be synchronized with the desktop version of the Metatrader platform.
#7: Trading Style
It is best to choose a forex broker to work with based on the trading style that you prefer. If you are a trader that is interested in scalping, you will have to pick a forex broker that allows scalping with Currenex accounts. Equipped with institutional grade software, these accounts allow for low spreads and liquidity of the Interbank market. If you are a trader that prefers long-term trading, then you should check out the overnight interest rates offered by the broker. The spreads may not be of much interest to you.
If you are a self-directed trader, you should ensure that your broker provides good quality fundamental and technical analyses tools to make fruitful trading decisions. Algorithmic traders typically use a VPN server so that their trading strategy is kept switched on even when the PC is powered off. If you are busy otherwise, you can also have your funds managed by skilled forex professionals. Look out for brokers that offer PAMM accounts (percentage allocation management module).
#8: Account Types
Different brokers offer accounts with varying minimum deposit amounts, trading terms and account features. Choose a broker that offers a minimum deposit which suits your budget. There are different types of accounts that may be chosen according to the amount that you want deposit. Terms are generally easier in terms of larger spreads, access to dealing rooms and software tools, personal managers and free VPS services for larger accounts (where amount deposited is higher).
It is also a good idea to choose the currency of your nation as the base currency. This removes the necessity of changing money when you open your account. If you trade with a currency that is not your home currency, you stand the risk of losing money if the base currency weakens compared to your home currency and when you withdraw funds you forced to exchange the same. This can happen even if your trading account makes profits. However, all brokers may not allow you to choose the currency that you want and you have to choose from what is on offer.
Lot sizes that brokers offer also tend to vary by the account type. Most brokers allow entry size lots of 1,000 currency units. As far as spreads are concerned, top forex brokers with dealing desks offer fixed spreads, while STP brokers offer floating spreads.
Market leverage also varies widely among brokers. You can choose any one that fits your investment outlay and risk appetite.
The methods of payment of deposits to brokers also vary widely. Whereas US brokers freely accept check payments and deny payments via the credit card, not many European brokers allow check payments. A majority of brokers allow payments via wire transfer and some of them through online wallet services such as PayPal, Skrill MoneyBookers, Neteller, etc.
#9: Customer Service
Good customer service is an important factor to consider when choosing a forex broker to work with. The best forex trading company would offer 24/7 customer service support to clear out any difficulties that the clients may have. Many of the top forex brokers offer customer support in different languages to cater to clients worldwide. Live chat and personal account manager facilities are also offered by some brokers.
#10: Training Material/Tools
The top forex companies provide a variety of good quality training material in the form of webinars, e-books, videos, etc., for their clients. They provide extensive insight into how to use trading tools to make their trades successful. The quality of the training material content varies vastly among the brokers.