Section I: How to Choose a Forex Broker
Sometimes it’s hard to make a decision with which Forex broker to open our trading account, there are just too many of them, and as the market becomes more popular there will we be more. Most of them have different features, capabilities, weaknesses and advantages, for this reason I have created a checklist that can help you decide the broker to use for your Forex adventure.
1. Is it Regulated?
The first question you have to ask to yourself is: is the broker I want to use Regulated? There must be no doubt about this first point. All regulated brokers must submit financial reports to regulatory authorities, and when they fail to do it, authorities have the right to charge them or terminate their membership. This forces Forex brokers to keep transparent financial reports.
The brokers must be regulated by their local regulatory authorities, for instance, for brokers based in the US, they must be regulated by the NFA (National Futures Association) and CFTC (Commodity Futures Trading Commission), Swiss based brokers must be regulated by the FDF (Swiss Federal Department of Finance), brokers in UK must be regulated by the FSA and so on.
Also when a Forex broker is regulated it allows investors to dispute any resolution, increasing the investor protection.
2. Trading Conditions
This point refers to the features of the trading platform and the trading conditions with the chosen broker. Amongst the most important factors are:
Spread - Obviously the smaller the spread on currency pairs the better the conditions are for investors and traders.
Platform execution - Trading execution refers to how fast and consistent are the execution of trades. Some brokers guarantee fast and transparent executions during normal market conditions.
Fractional trading – Some brokers allow investors and traders to trade on a fractional basis, instead of trading full lots “100,000 units” or “300,000 units”, they allow you to trade “163,345 units” or “325,911 units”. This is very helpful for trades risking a certain percentage of their balance on each trade.
Safety of funds – We need to make sure our trading funds are kept in a segregated account or at least insured.
Trading platform – Easy to use and understand platform, is it reliable during fast moving markets? And what extra features it offers.
Minimum investment – What is the minimum amount of money required to open a trading account? This aspect is very useful because before trading your full account, you need to test the waters and see how well you perform with an account containing limited funds (after trading a demo account).
Margin (leverage) – What kind of leverage can be used with the chosen broker? Just to make sure our leverage requirements by our Forex strategy and methodology (leverage above 100:1 is not advisable).
Commissions – Some brokers charge commission, it is ok if they do if the spread is smaller than other brokers.
One click dealing – If your trading style is for the very short term and you need to get in the market as fast as possible once you get your signal this might be a good feature for you.
Advanced type of orders – Your strategy might need to be to use two orders and once the first once gets triggered you want your platform to cancel the other (OCO orders), etc.
Support for mobile devices – excellent when you have a day job and need to be connected to monitor your trades at all times.
Trade directly from the chart – Some traders like to trade directly from the chart, sometimes it can take a few seconds to switch from the chart to your quote panel where you enter your trades.
Trailing Stop – Nice feature for trend traders and traders who like to lock in some profits as soon as the market moves in their favor.
And there are might be other features that could facilitate your trading experience.
Try to have a list of those features so you can test them on many platforms. Take in consideration that probably you won’t find a single broker with all the features you are looking for, so you will need to stick to the ones that have the features you feel are most important to you
3. Diligence
Hopefully you have shortlisted some brokers at this point. You should have 3 or 4 finalists. In this step do some research on forums, ask other traders about their experiences using their brokers, and so forth.
Some forums where you can ask for broker information are: ForexFactory, BabyPips, ForexNews. There are also some review sites where you can post your reviews and read what others are saying about specific brokers: ForexBastards, TheForexReviewer and Forex Anonymous. Be careful though, some of these reviews might be generated by the same person who really got pissed at the broker for something irrelevant: like an order not filled during an important announcement (we all know it is difficult to get one filled due to the volatility), etc. Please focus on those reviews that really say something relevant and give some kind of “proof” of what they are saying.
Amongst the aspects you should ask and get informed are:
Customer service – This aspect is the most important of them all, are they rude to customers? Are they willing to help customers? These are the questions you should ask in forums and fellow traders.
Slippage – Slippage is the difference between the price where the trade was executed and actual value of it. Do they honor stop loss and take profit levels? Do they guarantee it? If any one had any discrepancies, did their broker reverse the result?
Manual execution – Some brokers don't like scalpers, if they catch someone doing it, they will put this trader into manual execution, so a dealer (human) must accept all transactions made by this trader. Do they do this?
Re-quotes – a re-quote happens when you click the buy/sell button and the platform doesn't accept our price, so it will give us another quote for that particular trade.
If brokers are registered by their local regulatory authorities, you can visit the regulator website and you will find plenty of information about Forex brokers. Some of them publish resolutions regarding Forex brokers.
4. Testing
In this phase we should test your final list, first on a demo account to see how it works, if it fits your trading style and your system. If you are satisfied with the results, then try the same platform with limited funds to see how it performs on real trades. If you are satisfied again then open your full trading account with the chosen broker.
I hope this checklist help you all take the right decision when choosing brokers.
Section II: Additional Resources
In this page you will find additional links to resources related to this chapter content.
Regulatory Agencies – These are links to regulatory agencies.
Review Sites – The following links point directly to review services.
Forums with Broker Discussions – In the following forums you will find special sections dedicated to the discussion of forex brokers.
Forex Brokers at Trade2Win Forums http://www.trade2win.com/boards/forex-brokers/
Section II: Where to go from here
In this section, we will review some steps you need to take before you start risking real money trading your system.
Step 1:
The first step is to test your system on a demo account. Most Forex brokers offer a demo account (virtual money). This is an excellent choice to test your trading system as there is no money at risk. In this step, you will figure out if the strategy works for you. If you feel comfortable trading it, then it is more likely to produce good results. How much time should you stay in this step? It varies, it depends on the frequency of your trading signals, but you should not go one step further until your system gets consistently profitable results over a significant sample of trades. It can take many months, but you need to be patient. If you don't get consistent results, it is suggested to go back and review your strategy because it is not likely to achieve consistent results in your real account either.
You must be honest with yourself; you need to take every single signal generated by your system, not only the signals you thought were going to work, otherwise, you are going to have problems in the next two steps.
Ok, by now you had consistent profitable results on your demo account. You might think it’s time to go full. Nope, nope, nope. There is a big difference between trading a demo and a real account. The most important difference lies on emotions (fear, greed, anger, etc.) These are psychological barriers that affect every single decision made by traders in real accounts regardless of what he/she is trading (stocks, bonds, Forex, futures, grains, etc.) These emotional factors, in my opinion, are the most determinant factor that separates profitable traders from the others.
Step 2:
The next step is designed to deal with emotions and to confirm the results obtained in the prior step (consistent results in a demo account.) In this step you need to trade a real account with limited funds. Some brokers offer fractional lot trading. Meaning you are able to trade any desired amount (even cents), other brokers allow you to trade mini-accounts. What is important here is that these emotions we’ve been talking about are present only when there is real money at risk. At this stage, you are going to see if you are really comfortable trading your system.
If you are able to produce similar results than those obtained in a demo account, then you are ready for the next step. If you don’t, then you might need to tweak your system or create another one, as there is a chance your system will never fit you. If you created consistent profitable results on this stage, you have a chance to produce similar results in the next one; on the other hand, if you didn’t produce good results in this stage, you will not be able to make consistent profits on the next stage. Remember, you need to do things right, and be honest with yourself.
Step 3:
The last stage is trading in a real account with sufficient funds. If you are at this stage, and have passed successfully steps one and two, go ahead and try it, you need to be confident in yourself and in your system, your strategy must have already produced consistent profitable results, these are reasons to believe you are going to make it. Very few traders fail at this stage (if passed successfully prior stages.)
Remember the only way to test and actually being able to trade a trading system consistently is if you understand the following two points:
1. Market Uncertainty: Every single moment in the market is unique, there are only similar patterns (not identical patterns), the outcome of any pattern is unknown. However, we don't need to know what is going to happen next in order to make money; we only need to take the trades our system signals, in the long run the probabilities will play in our favor.
2. Trust and Commit to Your System: You have created your system, you know it has an edge, whenever it signals a trade there is a higher probability that the market goes in the intended direction, the only work you have to do is to follow it. Take ALL signals (nothing less) generated by your system; it is the only way you are going to gain confidence. And believe me, confidence is a very important component when it comes to trading successfully. If you went through every step in the process to test your system and finally got to the last one, then you should be confident about your system, it has produced good results, if you follow it consistently, it is likely to produce good results in your trading account with sufficient funds.
Section III: About the SF Advanced Course
Here are some of the topics covered at our advanced course:
Price Action – All our trading decisions are based on price behavior. Whenever we decide to enter a trade, the market needs to tell us it is going in the intended direction. It isn’t a bulletproof system, but it certainly is more effective than indicator based systems. What is even better is that you can combine this approach with other systems to increase their accuracy.
Mapping our Timeframe – It is very important to determine the trend in a timely and accurate way, our mapping method allows do it. It is an objective way to measure the trend, and its strength at any point. We also use this methodology to determine market turning points.
Money, Risk and Trade Management – These three aspects of the management tell us: how much to risk in our next trade, where to place our stop loss levels and how to handle an open position. We will learn advanced techniques to apply these methodologies.
Our Trading Systems – We share our trading systems, exactly how we determine low risk trading opportunities. Entry and exit points are just part of a trading system, we share our risk and trade management techniques, psychology behind the system, how to determine the market condition, etc.
Trading Psychology – How we deal with our emotions play a big role when it comes to trading, we will learn how to deal with them. It’s impossible to get rid of them, instead we need to use them in our favor.
