1 COMPARE FOREX BROKERS' TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 CompareForexBrokers.com TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 2 TOP 10 CONSIDERATIONS WHEN CHOOSING A FOREX BROKER Choosing the right forex broker requires careful consideration. There are 10 key features that every trader should research when selecting a new forex broker. Although spreads and pricing drive a traders decision when choosing a broker, there are several factors that contribute to a well-rounded trading experience. TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 3 1. TYPE OF BROKERS AND BUSINESS MODELS TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 4 There are two basic types of brokers that offer retail investor accounts for forex trading. These are: MARKET MAKER BROKER: also known as a B Book broker or dealing desk broker. NO DEALING DESK (NDD) BROKER: also known as an A Book broker. TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 5 DEALING DESK BROKERS Dealing desks or market makers set their own bid/ask spreads (or align with pricing from global liquidity providers) and use their own internal sources of liquidity for the trade. For each trade, the market maker will be the trader’s counterparty, which means they profit when the trader makes a loss and makes a loss when the trader profits. As dealing desk brokers do not charge additional commission fees on top of the spread, spreads are wider than what no dealing desk brokers offer. TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 6 NO DEALING DESK BROKERS No dealing desk (NDD) execution means brokers match orders directly with external liquidity providers, thus eliminating the need for intermediaries (dealing desk). This is done using execution methods such as straight through processing (STP), electronic communication network (ECN), direct market access (DMA) or hybrid combinations of STP, ECN and DMA. No dealing desk brokers offer the tightest spreads as they pass on bid-ask prices from liquidity providers with no markups and instead charge a flat-rate commission fee. While dealing desk brokers are compensated through wider spreads, NDD brokers profit from the commission fees they charge. NDD execution is suited to day traders, scalper, algorithmic traders (traders that use automation). TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 7 2. SPREADS, COSTS AND TRADING CONDITIONS TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 8 When choosing a broker, one of the most important considerations is trading costs. There are two key trading costs to research before selecting a broker, being spreads and commission fees. Spreads are expressed in pips or points and equate to the difference between bid and ask prices for a financial instrument. With each Pip costing USD$10 or pro-rata (USD $1 for 0.1 pips) to open a position and again Commission fees are the second main trading cost. No dealing to close a position (i.e. USD$20 desk brokers may offer lower spreads, but high commission costs in total), using a broker that can negate these savings. It is important to factor in the cost of offers tight spreads can help to both spreads and commission fees when assessing a broker's reduce costs. competitiveness. TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 9 ACCOUNT TYPES AND SPREADS COMMISSION NO COMMISSION VARIABLE FIXED SPREAD ACCOUNTS ACCOUNTS SPREADS Fixed spreads remain Often referred to Often called standard Also called floating constant regardless as ECN accounts. or classic accounts. spreads, variable of market conditions. Commission account Commission-free spreads fluctuate inline While the fixed spreads types provide low accounts have a with market conditions tend to be significantly spreads as no wider spread than such as available wider than variable commission costs are ECN Accounts as liquidity and major spreads, they enable included in the spread. commission fees are news events. predictable trade Instead a commission included in the spread. planning as traders will fee to open and close Variable spreads use know what they can a position (round-turn) For example, EUR/ market execution. expect to pay for each for each lot that is USD spread = 1.4 pips + trade. traded. no commission fees. Some brokers may change fixed spread For example, EUR/ Many brokers offer in the most extreme USD spread = 0.4 pips traders a choice of conditions. + $3.50 commission either variable spreads fee per side, per 100k that move with market Fixed spreads use traded. conditions or fixed spreads that are set instant order execution. by the broker and constant. TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 10 On top of spreads and OVERNIGHT FINANCING FEES: INACTIVITY FEES: commission fees, there are Traders that keep leveraged positions If a trader leaves their account open for longer than one day may dormant and doesn’t make any other fees and trading costs need to pay overnight financing fees trades for a short-term period to consider when choosing a (also called swap rates). Depending (usually 6-24 months), many broker: on whether a leveraged position is brokers will charge monthly long or short, a financing cost that is inactivity fees. derived from interest rates will either be paid or received. TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 11 3. EXECUTION SPEED AND SLIPPAGE TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 12 To ensure quick order execution, many brokers place their servers at data centres near major liquidity providers. Faster execution reduces the risk of slippage and a good broker will advertise their average execution speed that is typically expressed in milliseconds (ms). As forex markets are volatile, if you are trading with variable spreads then it can help to minimise slippage. Slippage refers to the difference between the expected price when an order is placed and the actual price the trade is executed which can occur due to lag time during execution. Slippage can be positive or negative and can become exaggerated in a volatile market. TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 13 To find a best broker with the least amount of slippage, you can compare market order and limit order execution speeds. Certain brokers will make this information publicly available to highlight their transparency. MARKET ORDERS: Market orders are placed at the current market price with no price limits. Market orders are commonly used for automated trading. LIMIT ORDERS: Limit orders allow traders to predetermine a price to buy or sell, with the order being automatically executed if markets reach the preset price, otherwise the order will not be executed. TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 14 4. REGULATORY OVERSIGHT TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 15 Financial regulation varies between jurisdictions, and it is recommended to use a broker that uses the regulator of your country of residence. Trading with a locally regulated broker ensures they are following the business and financial requirements of your country and provides the best protection if your broker were to run into problems. It also ensures traders have recourse to resolve issues with the broker should a dispute arise.. If a broker does not use the local financial regulator of your country, then you may still be able to trade with that broker, but there is no guarantee what protection you will receive. Financial regulators can only help traders of the country they monitor. TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 16 Tier-1 regulators such as the Financial Conduct Authority (FCA) in the UK impose the strictest financial regulation worldwide. Depending on the financial authority and country, brokers will provide different levels of investor protection including: LEVERAGE CAPS NEGATIVE BALANCE PROTECTIONS SEGREGATED TRADING ACCOUNTS Some brokers hold offshore licenses from regulators such as the Securities Commission of The Bahamas (SCB) or are not regulated by DOCUMENTED COMPLAINTS any financial authorities. While this does not necessarily mean your PROCEDURES funds are unsafe with these brokers, it is always advisable to use a tier-1 or tier-2 regulated broker. TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 17 5. CUSTOMER SUPPORT TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 18 Whether you are a high-volume trader or a beginner with account queries, getting in touch with your broker should be quick and easy. When researching a brokers’ customer support, it is important to note the hours of operation as well as contact methods. COMMON CONTACT METHODS INCLUDE: • Email • Phone • Live chat (via website or trading platform) Depending on your location, multilingual customer support may also be helpful. OTHER METHOD OF SUPPORT INCLUDE: • Support via social media (Facebook, twitter, line) • FAQ • Glossaries • Forums TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 19 EDUCATION To supplement customer support teams, many brokers offer educational materials designed for all levels of forex trading experience. Resources such as webinars, trading platform courses and tutorials can usually be accessed for free. TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 20 6. TRADING PLATFORMS TOP 10 TIPS FOR CHOOSING A FOREX BROKER IN 2021 WWW.COMPAREFOREXBROKERS.COM 21 Whether you prefer to fully automate trading or use social trading tools, it is vital to select a trading platform that provides the market access and trading tools required to achieve your investment objectives.