When we run our Forex & CFD Broker reviews, regulation and strict adherence to client money rules, both here in Australian and in each relevant jurisdiction, is a priority and it should be for you.
In addition to that, each broker review focuses on 6 critical points, which reflect what most focus on when choosing a broker.
Ease of use
Ease of use actually starts with being able to navigate around the website and easily find what you are looking for. Once you open up a trading account you want to make sure the process of logging in and navigating is intuitive. It should be very clear where you need to login in order to access your account and begin placing trades.
Once you have logged in it is time to get your hands dirty and start placing trades. Some questions you might want to ask are:
Another aspect of the trading platform that is often overlooked is the order ticket. When placing orders you need an interface that clearly states what the order is and leaves no room for error.
There is nothing worse than placing a Forex trade with your broker for a stop to enter incorrectly, only to realise the next morning you missed out on 65 pips profit because you couldn’t work the order ticket. Whilst it may only be potential profit missed and not a loss, it many cases it feels worse psychologically.
Modern technology today plays a huge role in the trading space and brokers know and understand this and literally spend millions of dollars in developing features that make your trading life that much easier.One of the biggest developments in the last couple of years has been the rise and rise of mobile trading applications for iPads, iPhones and Android devices. Recent statistics from Investment Trends have shown that 41% of frequent traders use a smartphone or tablet for online trading with some 58% of CFD trading using mobile trading applications.
One of the biggest developments in the last couple of years has been the rise and rise of mobile trading applications for iPads, iPhones and Android devices. Recent statistics from Investment Trends have shown that 41% of frequent traders use a smartphone or tablet for online trading with some 58% of CFD trading using mobile trading applications.
Charting features rank up extremely highly for the fact that over 70% of traders use technical analysis to make their buying and selling decisions, especially short term traders. Platforms need to have the full range of technical indicators including all your mainstream ones plus some of those more elusive indicators like the Ichimoku clouds and custom building your own.
RSS feeds are becoming increasingly more widespread, and another great feature with certain platforms is the ability to add your RSS news feeds right into the platform. This allows you to custom build your own ‘newspaper’ of trading news that is specifically relevant to you.
Commissions and margins
Trading professionals and amateurs alike all have the same fixed cost when it comes to trading, and that is commissions. It goes without saying that the lower your commission rate, the easier it is for positions to move to break even and then profit.
Traditional share trading usually carries a high minimum brokerage rate, but CFD brokers have led the field from the front in regards to commissions on share CFD trades. As an industry standard, you can place trades across Australian share CFDs from $7 – $10 minimum or 0.10% with some going as low as $5 minimums or 0.05% such as Capital CFDs & LCG Markets.
Margins are important for traders in that the lower the margin, the more a trader can control for less capital up front. Nowadays brokers offer extremely low margin, allowing traders to control more than 100 to 1 and even up to 800 to 1. Obviously, this is a little ridiculous, and the reality is you need to trade safely and trade within your means. Leverage is a double-edged sword so focus on capital preservation and trading lightly as your number 1 priority.
Range of markets
Ironically most CFD & Forex brokers have around 80% of all their trades conducted on eight products, such as the Forex majors, leading indices, Crude and Gold but traders often feel the need to trade with a broker who has 12,000 products. Clearly, the most important factor here is that your broker covers the markets you are looking to trade and has a comprehensive list of the others, just in case you decide to test other markets.
Some of the world’s best traders have remarkable breakthroughs when they stopped trying to trade everything that moves and instead focusing their efforts on just 1 or 2 main products. So when it comes to a range of markets, just be sure they cover your products with competitive commissions, spreads and low margins.
Reputation and security
What is the history of your new Forex or CFD broker? Have they had a checkered past or are they squeaky clean? The first thing you want to know is where are they regulated with the main focus being ASIC (Australian based regulation) and the FSA (United Kingdom). You may also want to work with those companies that are publicly listed as there are additional reporting and corporate governance criteria they have to meet which provides additional peace of mind to you the trader.
Client money handling procedures have become increasingly more important with companies like MF Global (thanks to Jon Corzine), Peregrine Financial Group (PFG), Sonray Capital Markets plus others going into liquidation due to poor client money procedures or corrupt CEOs.
So what do you need to look for when it comes to finding a safe and reputable broker? While there is no 100% guarantee your money is going to be safe even with a bank, it would be ideal if the company you traded through never used any client money for hedging or margining purposes. They should use 100% of their money to clear trades with their clearing counterparties.
Other points to take note of are daily reconciliations of both company and client funds and most importantly, segregation of duties. Segregation of duties means staff members cannot individually submit a payment for withdrawal and also approve and release those funds. You never want a situation where a company director, CEO or CFO can submit funds for withdrawal and also approve them. This gives them the power to allocate funds to their personal accounts without other authorisation or approval.
Spreads, fee’s and charges
Forex brokers give clients access to ECN style Forex price feeds which have razor tight spreads with some as low as 0.1 pips but you do have to pay brokerage on top of that. While many new traders believe all Forex brokers are commission free, it isn’t the case. ECN style brokers provide a feed direct to their clearing counter parties (Banks) and don’t add any additional spread to the price. This means traders get fantastic prices but have to pay brokerage of $7 round turn per full lot, with some brokers as low as $6.
Other fee’s you want to take note of are overnight financing and SWAP rates. Some brokers will charge you the overnight cash rate plus 3% to hold positions overnight while others use a combination of complicated mathematics to calculate this rate. Either way, you want to keep this figure low and try to go with those who charge the cash rate plus 2% to save some money.
Other charges are few and far between, but many share CFD brokers may charge a monthly data fee to access the live pricing from the relevant exchanges. For example in Australia you may get charged a monthly ASX data fee of $41.25, and if you do so many trades per month, then you will get reimbursed.too.