Tuesday, January 19, 2016

9 Tough Questions for Forex Brokers

 1. How often are advertised spreads available?

Some brokers publish “as low as” or “typical” spreads without revealing when or for how long these rates are on offer. You may never get these spreads when you trade.
If your broker advertises spreads “as low as” 0.9 pips on EUR/USD, you need to know what “as low as” means. Do special conditions apply? Can you see a record of recent spreads to confirm their  spreads are what they advertise and if they apply to you?

   2. Do special conditions or restrictions apply?

All too often, brokers will advertise tight spreads that, in truth, apply only to a narrow range of ticket sizes or a small group of privileged customers. These “special” rates are reserved for traders who meet restrictions based on deposit size, trade volume, region, or lot size.
For example, many brokers impose a minimum account opening balance or require a minimum trade size before you can access their tightest spreads. (Brokers can be equally reluctant to offer their lowest spreads for larger ticket sizes.) The only way to truly test quality of execution is to try the real thing, so such restrictions may make it prohibitively expensive to test their platforms.
    3. Are there extra fees in addition to the spread?
Some brokers may offer low spreads but make their profit in other ways. For example, they may charge extra fees or commissions for the privilege of accessing their “professional” trading platforms. Or they may charge monthly fees you can avoid only if you keep a minimum deposit or meet a minimum trading volume every month.

4. Do all clients get the same spreads?

Every forex dealer claims to have the industry’s tightest spreads. But not every trader gets the low prices touted by some dealers, who may tailor their spreads based on customer trading patterns, account balance, trading volume, or third-party introductions. Larger and better-connected traders and financial organizations may receive “preferred” treatment and “discounts” that you never even hear about, never mind get offered.

5. Will my trade get executed at the quoted price?

The tighter the spread, the better for you. But it’s the quality of execution that determines whether you actually receive the tight spreads you see on screen. Beware rejected trades, delayed execution,price-skewing and stop-hunting that may never occur on the broker’s demo platform.Say, for example, your screen shows a tight spread and you opt to make a trade at that price. But your trade is filled a few pips to your disadvantage or is mysteriously rejected. When this happens again and again, it’s a clue that you’re falling prey to “bait-and-switch” pricing.

6. Do I have unlimited access to a live demo platform?

A demo platform can be useful to observe how prices and spreads vary under different market conditions. And it can give you an idea of how good your broker’s quality of execution is—but only if the demo platform behaves exactly the same as the real thing.
Ask how the broker's demo platform differs from their real platform in terms of execution and spreads.
7. How are interest charges and payments calculated?

In the forex trading industry, standard practice for interest calculations on funds being traded is the rollover swap with two-day settlements. This means that you pay (or receive) interest based on the open trades you hold at 5 p.m. EST, with weekend interest calculated and included on Wednesdays.Experienced intraday traders may be used to timing their trades around the rollover swap, but consider how it may impede your freedom to keep trades open. Ideally,you should receive (or pay) interest based on the length of time you hold open trades—not based on the time of day you hold them.

8. For fixed spreads, what are the benefits?

In forex, rates and spreads change with every market tick. If you choose a broker that offers trading at fixed rates, you are likely paying higher spreads than you would under a variable system. Is it worth it? That depends on your trading pattern. With fixed spreads, you are in effect paying an “insurance premium”—so you can trade around news events or other times when the markets tend to be more volatile.

9.Do I have open, uncensored access to information?

Many banks and forex brokers don’t like to share their data and intentionally hide the very information you need to make your best trading decisions. This tendency starts with a reluctance to provide open, unfettered access to spreads and pricing information. These same organizations rarely share their customer feedback , leaving you to wade through external forums where you never really know whose agenda is whose.


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