5 Things to Consider When Choosing a Foreign Exchange Broker
The forex market is very competitive, chances are that you have already received cold calls from FX brokers, claiming to offer you the best deal. With so many different providers out there, how do you pick the best broker? The following are the qualities you should look for:
1. Security
First and foremost a good broker must have a high level of security. Fortunately, checking the credibility of a forex broker isn’t very hard. Before even THINKING of choosing a broker, make sure that the broker is a member of the Financial Conduct Authority (FCA).
2. Best Value
No matter what kind of currency you wish to convert, like it or not, you will always be subject to costs. Every time you make a trade, you will have to pay for the execution of the trade (the difference between the rate you get and the interbank rate). However, you should ensure that no set up costs or transaction charges are added.
It is only natural to look for the most affordable and cheapest rates. However, some brokers can appear very competitive on the first transaction, but may not offer consistently good rates.
3. Strategic Advice
Whilst it is important to identify the best exchange rate at any given point, it is much more important to plan ahead and time those transactions correctly. Your broker should therefore provide free analysis and strategic advice and help you to develop personalised strategies to mitigate your FX exposure, including the use of several important tools to get the best short and long term returns. These include a combination of FORWARDS, SPOTS, STOPS and occasionally OPTIONS.
4. Market Knowledge / Daily Updates
Your broker should take a proactive approach to ensure that trades are timed when prices are optimal. This takes advantage of short term fluctuations including overnight price spikes. They should therefore work closely with the 24 hour FX market. Do they offer a free news feed? How about easy-to-use technical and charting tools? Do they present you with all the information you will need to trade properly?
5. Customer Service
Brokers aren’t perfect, and therefore you must pick a broker that you can easily contact for advice or when problems arise.
The competence of brokers when dealing with account or technical support issues is just as important as their performance on executing trades. Brokers may be kind and helpful during the account opening process, but have poor ongoing customer service.
Check which businesses use their FX services, take independent advice and ask for testimonials or case studies as appropriate.