Best Forex Broker Spreads – Best Tips On How To Select A Good Forex Broker?

Best Forex Broker Spreads

Basically there are two types of Forex brokerage firms in the market, one is known as the Market Maker and the other is known as the Electronics Communications Network (ECN). So what are the differences between them and which one is better?

MarketMakers

* They are the market brokers who fill your orders without routing them into the market.

* Have a dealing desk meaning you are playing against them, therefore if you win, they will lose and when they win, you lose.

* Some even widen the spreads, use slippage or even “disconnect” you from the trading server during volatile time, meaning at time when you want to close your trade during volatile time especially when the news are coming out, you will either cannot close it or they give another disadvantage price other than your price to close the transaction. In short, this process is known as re-quote.

ECN

* No dealing desk meaning your order will go straight to the Interbank Market without passing any orders through the dealing desk, also known as STP (Straight Through Processing). This means you are directly playing against all the banks and big boys directly.

* There will be no re-quotes and no order confirmation especially during the news period.

* How they earn money then? Either through the spreads or commissions that they imposed.

* Whether you win or lose also not their business as compared to the market makers.

In short, when you go and research your brokers profile, make sure that they have met the criteria as listed below.

a. Are they an ECN broker who uses STP?

Must be a YES.

b.

Do they provide MT4 Forex platform?

Must be a Yes as well cause it is the worldwide standard to trade Forex with MT4 platform. In addition, there are many Expert Advisors (EA) out there only work with MT4 platform.

c. Do they have an independent third party to administer their segregated client accounts?

It is necessary so as to protect the their clients from brokerage companies being shutting down either due to compliance issues or misappropriation of funds. In this way, you can be sure that your funds are treated ethically and responsibly.

d. Do they provide standard-lot (1), mini-lot(0.1) and micro-lot (0.01) size for trading?

By default, all Forex brokers should be able to provide for all the lot sizes as stated above. For a start, it will be good to use micro-lot size, i.e. 0.01, so that if you lose 1000 pips, the total actual amount you will lose is USD$ 10.

e. Do they provide Live Chat Support?

Meaning, you can open a chat window with them on their website and talk to them directly in the event you encountered any problem 24×7 from Monday to Friday.

f. What are their leverage?

The brokers’ leverage level vary from one broker to another but they are usually in a range from 100:1 to 500:1

Normally, if they can provide 100:1 or 200:1 that should be more than enough. Leverage will not effect on the pip value, leverage will only effect on the margin requirement. Best Forex Broker Spreads

Example euro/usd – leverage 500:1 – 0.1lot – 1.5787

Margin Required: 1.5787 x 0.1×100,000 / 500 = USD31.57 margin needed to open pair.

Example euro/usd – leverage 100:1 – 0.1lot – 1.5787

Margin Required: 1.5787×0.1x 100,000 / 100 = USD157.87 margin needed to open pair.

The small leverage you use will need bigger margin requirement to open pair

The big leverage you use will need small margin requirement to open pair

g. How much do the broker charge for the spreads?

Normal Spreads For Major Pairs

· USDJPY – 1 to 2 pips

· AUSUSD – 1 to 3 pips

· AUDJPY – 1 to 3 pips

· EURUSD – 1 to 2 pips

· EURJPY – 1 to 3 pips

· GBPUSD – 1 to 2 pips

· GBPJPY – 1 to 3 pips

i. Do they provide Demo account so that you can test it out the platform to see if you are okay with their user interface?

Should be a YES.

j. Do they provide hedging facility?

Sometimes, with different strategies, you will need to open two different opposite trades from the same pair. For example, if you use strategy A, you will need to long the pair. At the same time, if one of your other strategy B’s signal has come along and needed you to go short on the same pair, for all US Forex brokers, they normally won’t allow longing and shorting on the same pair of currency at the same time. They will normally close one trade and start the other trade. Therefore check with the brokers whether are you allowed to long and short on the same pairs at the same time.

k. How easy for you to make a deposit or do a withdrawal from the broker?

Preferably with the under mentioned services:

· Can be funded by credit/Debit card.

· Can be funded by Wire Transfers.

· Can be funded by Local Transfers, meaning you can deposit cash into one of the broker’s assigned local bank to fund your account.

· Can make withdrawal via Wire Transfers.

· Can make withdrawal via Credit Cards or Pre-Paid Debit card.

l. Where is your broker located and are they regulated by any kind of regulatory institution?

If your broker is an offshore broker, check with them or from the Internet search engine are they regulated by any regulatory institution? If not, how can they give you a guarantee on your funds should the broker file for bankruptcy?

With these few questions on hand, you can go and do your research and will understand which broker is suitable for you. Best Forex Broker Spreads