Forex Basic Training - Brokers Matter - #5 in a series by Mary Leonard

Why should the selection of a broker matter? What makes one better than another one? The first obvious reason is that you want your money to be safe. That should be self-explanatory so we won't say much about this aspect, except to encourage you to do your research, read the reviews, make sure they have been in business, are regulated, and have no adverse actions against them. Investing is risky and there's no need to increase that risk! Some brokers are known as ECN, some as straight-thru-processing which is a type of ECN, some are market makers. The specific type matters less than the integrity and services they offer. Different brokers are better at different things. Some offer commodities, some do not, some only offer limited currency pairs. They all have different requirements for initial deposits. Some take very small deposits and some require a minimum of $10,000, $50,000, or more. They offer different leverage options, Virtual Private Server (VPS) Hosting, different platforms, the list goes on... The broker selection can matter a great deal if you are using an Expert Advisor (EA), a robot, to trade. Many EAs recommend certain brokers for their EAs. They do this because the EA software has certain parameters it looks for before it opens a trade. If the broker doesn't meet these parameters, no trading takes place. For example, if the EA is looking for a spread lower than 5 for a particular currency pair, but your broker is typically offering a spread of 6 or 8 (or higher!), then you're not going to see trades with that broker. The same EA installed in an account with another broker with spreads at 2 or 3 will see many successful trades. (And, it is NEVER recommended to raise the maximum acceptable spread just to get a trade... it may get the trade but you're increasing your risk and you probably won't make money!) There is always a fee paid for a trade, no matter what the advertising says. Usually it is in the spread so you aren't charged a "commission" as such. But there are brokers that charge commissions. You'll need to evaluate which works best for you. You'll want to get spreads as low as you can, but don't get too overwrought with it... spreads change throughout the day and they change over larger periods of time. You may need to change brokers at some point. If you only do manual trading you also need to be concerned with the spreads, but at least you will be deciding at the moment if the spread is acceptable or not. Check the spreads for the specific currency pairs or commodities that you are interested in. You might be surprised at the broad range out there. Whether you are manually trading or using an EA, you always start out negative because you pay for the spread when you open each trade. That means that if you have a spread of 8 you have to make up those 8 pips to break even. That's a lot different than having a spread of 3 to make up before you start getting on the positive side. Find out what your funding and withdrawal options (and fees) are. Make sure you know this before you open the account. Other issues that you may not encounter until you're in a live account involve the speed of execution and the frequency of "re-quotes". Both of these issues mean that your close may not be executed at the price you want, almost always not in your favor, so you are either losing money or your gain is lessened. Always, always trade in a demo account with the broker before going live. While in the demo find out how it differs from a live account. Be patient, take time to know your trading environment. It's the only way you will be able to select the right broker and avoid many of the pitfalls. See Forex Basic Training - Lot Type - #1 in a series for a discussion of the critical importance of knowing the lot size in your trading account. This is part of selecting the right broker.