Forex Tips To Select The Best Broker
Most Australian forex traders select a forex broker based on ‘word of mouth’, a recommendation from a forex course or training site or a sign up bonus. It’s quite rare for these traders to actually have the ability to justify that their broker is the best for them. To help guide you to compare forex brokers a quick guide has been developed.
Currency trading would be impossible without leverage. Leverage allows a forex trader have greater exposure to currency movements by offering a multiple of the original deposit or trader.
The top forex broker Australia leverage levels are 500:1. At this level, if you have a $100 position margin that you could actually have an overall position of $50,000.
When your trading with high leverage and movement in the predicted direction can lead to significant profits while if they move in the reverse you can lose your position margin (and even more due to slippage discussed later).
With forex brokers Australia leverage ranging from as low as 200:1 and up to 500:1 this is one of the key differences between providers.
Fees for forex are one of the highest for any trading accounts. While shares, commodities and equities often have set fees for each trade the fact that leverage is involved with currency trading (similar to borrowing) the overall fee percentage is higher. What may seem like small differences in forex broker fees may actually lead to significant totals each year. There are two types of fees with an account:
Spreads can be fixed or variable. Many traders prefer the fixed option as they know upfront what to expect while variable as when spreads are tight they can get significantly better. The charge below shows how when a spread tightens those with a variable spread will come out in front while a widening spread will lead a forex trader using a fixed spread to come out ahead.
Some accounts will have both spreads and commissions. Commissions are based on the amount traded and combine with spreads to make the overall fee. The Pepperstone example below shows how an account that charges commission (Razor Account) has significantly lower spreads which can lead the forex trader to come out ahead.
The biggest risk for forex brokers is slippage. Slippage occurs when a very quick and large movement in a currency pairing occurs such as when the government makes an interest rate announcement. When these movements occur the price an order if filled will be different from the price requested by the forex trader. This can mean that any expected loss (or gain) can be significantly larger than expected.
There are limited forex brokers that offer guaranteed stops where a loss will be limited on a guaranteed basis. Most brokers will have slippage risks but the extent can be different due to factors such as how advanced (and fast) is their interface, API and connection. Technology should be a key consideration if the broker doesn’t offer guaranteed stops.
Forex like most financial products and brokers has rouge traders and companies. Over the past decade in Australia a lot of publicity has focused on forex scams and Australian investors losing all their money to overseas forex brokers. It’s critical to note that these brokers were not Australian commission approved which while not prefect (and there have been court cases recently) have safeguards, rules and regulations. An example is the deposit funds must be stored in Australia (within a trust account).
The Forex Platform
There are a variety of trading platforms that currency traders use. The most popular one is Meta Trader 4 but there are many other platforms that have their own strengths and weaknesses may be more suitable depending on the fx strategy and tactics deployed. Learn about each platform when you compare forex brokers and ensure you find a broker that has the platform that works for you.
The forex broker sector is highly competitive. Most forex traders are extremely loyal to their broker so incentives are normally provided to get a user to trial their company. Most of these offers are sign-on bonuses which can be a percentage of your first trade or deposit. This is a great way trial the forex broker in a real life scenario (or a few). You should compare bonus offers when deciding which broker to trial first, especially if they have similar platform and spreads.
With forex traders rarely changing brokers once signing up, its critical to thoroughly compare forex brokers prior to signing-up. Key factors to consider range from leverage, fees (spreads/commissions), the brokers regulative body, bonus offers through to the fx platform they use. This site has many forex broker comparison tables which takes into account all these factors but with greater emphasis on a single element (eg leverage) to suit that type of broker.