Five questions to ask your forex broker
When searching for your first broker or looking to make the switch, there's five questions you should always ask your forex broker.
1. Does the broker have tight spreads and low commission?
Based on research from Forex brokers’ and independent client surveys (including Investment Trends – the largest of its kind worldwide), this is typically the number one choice on a client’s wish list when trading. It makes sense to have your costs as low as possible as you pursue greater returns. For a lot of traders the difference between a profitable trading account and one that isn’t can be about the amount paid in spreads/commission charges. The amounts quickly add up and most traders don’t even realise it. Here’s a useful example: Let’s say Broker X has a EURUSD spread of 1.7 pips (the worldwide broker average on this pair) and no commission. If you placed 10 standard FX lots per month that’s $170 in brokerage costs alone! That same EURUSD trade at another broker, let’s say Broker P, could have a 0.0 pip spread plus a $7 commission, meaning 0.7 pips per lot. Therefore, the total cost is $70. That’s a $100 difference per month, or $1,200 per year.
2. How about fast execution?
The ability for you to place a trade and get in/out quickly can spell big differences from broker to broker. You need a broker which invests heavily in infrastructure, ideally a co-located platform and servers close to where the banks and trading servers are. In non-trader speak, this means having all your servers located in the one area to make sure there is as little delay as possible when technology needs to talk to each other. A delay of over 1 second can cost just as much in a month as a wider spread can, so don’t underestimate the power of technology. Pepperstone is known for our lightning fast execution speeds of around 30ms in Australia*.
3. Are they reliable?
Choosing a provider which is experienced is just as important as spreads and execution. A reliable platform and a reliable client service means knowing your broker is there to help in good times and bad. This means as a minimum your broker support needs to be available from when the FX markets open all the way through to when they close on Saturday morning (or 5pm Friday in New York – the ‘unofficial’ close). That’s 24 hours a day, 5 ½ days per week.
4. Critical: are they regulated?
A top tier regulatory body such as those found in Australia (ASIC) and UK (FCA) means strict compliance and safety of funds procedures to ensure your trading account funds are held safe. All of these regulations mean that by law, a broker segregates client funds from their own company funds. It also means they have a physical location, are accessible and there if and when you need support on your trading journey. This is definitely something that you want to ensure you get right.
5. Do they have a variety of forex and CFD trading platforms and tools?
Some brokers may offer their own branded platform, which aren’t as flexible and customisable as you might want. Brokers should also have different platforms and mobile apps so that you can see which one you prefer to ensure the best trading results. Safe and secure self-service tools like a secure client area can also be really handy, giving you the ability to deposit and withdraw as and when you need to, as well as tools and resources to help you maintain your trading account.
6. How long has the broker been in business for?
Unfortunately when it comes to financial services, tenure is valuable. Watch out for red flags, such as a newly established broker operating in a non-regulated environment, or one that makes it hard for you to find information online or from other traders about their service. When it comes to trading capital - that is, capital you’re willing to risk - you need to look for a broker that has your needs at the heart of its business. Having been operational for a number of years in a regulated environment, an established online presence and awards from government organisations are just some of the things to look for here.
Just a few key points about Pepperstone:
- Spreads from 0.0 pips and AUD $7 commission round-turn
- Execution as fast as 30ms (0.03 of second)
- 24 hour support wherever you are in the world
- ASIC, BaFin, CMA, CySEC, DFSA, FCA and SCB regulated
- Multiple low-cost ways to fund your account
- Over 1500+ Tradable Instruments (FX, Commodities, Indices, Share CFDs and more)
- Established in 2010 in Melbourne Australia
- One of the largest MT4 brokers in the world~
~Finance Magnates Q2 report 2019
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information provided here, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted. *Most orders are executed in less than 30 milliseconds (Pepperstone Group Limited) and 60ms (Pepperstone Limited) based on time taken to process once received in Pepperstone's bridge.