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01 Oct 2016

Important Questions You Should Ask Your Forex Broker


The foreign exchange market is highly competitive and brokers offer you the means to trade the financial instruments. The Forex brokers offer lots of services and benefits and you may want to consider them, especially if you are just starting with the trading. But even before you think about investing in a potential broker, you want to be sure that they can deliver even beyond your expectations. This you can do by asking several very important questions and evaluating the answers that you get from the Forex professional.

1. How is your company stability? Stability will usually rely on three important elements, client base, financial strength and the company background. The company should have been in business for a reasonable period of time, have enough capital and cash that is well audited and have a reliable client base to keep it solvent. A broker who answers this question along these lines for sure knows what he is doing.

2. Is the company regulated? A good and reliable Forex broker should be registered with the right bodies and should not have any problems, providing you with any details regarding the same. If they extend services internationally, then the company ought to also be registered with the relevant regulators in the given jurisdictions. Remember your risks are more effectively managed when working with a broker that is regulated.

3. How do you obtain pricing? Forex brokers will usually obtain pricing through dealing desk execution or no dealing desk execution. Under dealing desk execution, they are responsible for creating pricing and also executing the orders. In this method, the spreads are fixed and can be higher than variable spreads. This method has restrictions and you should know about any limitations. Under the no dealing desk execution method of pricing, market makers stream the bids and ask prices to the traders via the broker platform. The same market makers also execute investor orders. It is a method that has no restrictions to the traders. Decide which method works best for you so you are able to choose a broker appropriately.

4. Do you have any trading restrictions? Trading restrictions you might face as an investor can be from regulatory agencies Find out as much as you can about anti-hedging restrictions, leverage restrictions and any other additional restrictions your broker may have. After knowing about any present restrictions, then think about how they affect your trading and how comfortable you are with them.

5. What about trading costs? Before you ask, this question, at least have a model on expected transaction frequency and principal you wish to place in your account. Costs will cover spreads, markups, commissions and any other additional fees like margin costs, monthly minimums and inactivity fees. Do your math and decide how affordable and reasonable the Forex broker is according to your expectations and possible results and then make a decision on whom is best placed to help you meet your foreign exchange goals.