The trading platform is the trader's portal to the markets. With this in mind, traders should ensure that the platform and any software is easy to use, visually pleasing, and has a variety of technical and/or fundamental analysis tools. Perhaps most importantly, trades should be able to be entered and exited with ease: a well-designed trading platform will have clear buy and sell buttons, and some may even have a "panic" button that immediately closes all open positions. Figure 1 shows an example of an order entry window that has clear, easy-to-use order entry buttons. A poorly designed interface, on the other hand, could lead to costly order entry mistakes, such as accidentally adding to a position rather than closing it, or going short when a long trade was intended. Other considerations include customization options, order entry types, automated trading options, strategy builders, backtesting and trading alerts. (Learn how to set each type of stop and limit when trading currencies. For more, see How To Place Orders With A Forex Broker.)
Figure 1: This TradeStation order entry window provides easy-to-use buttons to place trades or to close open positions.
Typical EUR/USD Spread on Standard
Brokers typically make their money on the spread; that is, the difference between the bid and the ask price. A EUR/USD quote of 1.3943 - 1.3946 has a 3 pip spread. That means that as soon as a market participant buys at 1.3946, the position has already lost 3 pips of value since it could only be sold for 1.3943. Typically, the majors, which include the U.S. dollar/Japanese yen (USD/JPY), the euro/US dollar (EUR/USD), the U.S. dollar/Swiss franc (USD/CHF), and the British pound/U.S. dollar (GBP/USD), trade with greater liquidity and tighter spreads, but the various brokers can determine the spread for each currency pair. A typical spread for the EUR/USD currency pair traded on a standard account might range from 1-2 pips. Many brokers, however, reward their standard account clients with tighter spreads, and some offer premium accounts with even more favorable spreads. (For related reading, see Retail FX Spreads: Do They Even Matter?)
Typical EUR/USD on Micro
Since micro accounts are the smallest accounts, brokers may utilize a wider spread to try to make money. While the spread varies from broker to broker, forex traders could expect to see spreads of 2-3 pips, though some brokers do offer the same spreads on both standard and micro accounts. In addition, some brokers state in their fine print that during times of increased market volatility, such as during the release of important economic or political news, the spread on micro accounts for certain pairs can be raised.
Number of Pairs Offered
While there are numerous currencies available for trading, only a few get the majority of attention, and therefore, trade with the greatest degree of liquidity. The majors (USD/JPY, EUR/USD, USD/CHF, and GBP/USD) tend to trade in more predictable movements and ranges; however, many more currency pairs are traded. A broker may offer a huge selection of forex pairs, but what is most important is that they offer the pair(s) in which the trader is interested. (For related reading, see Top 7 Questions About Currency Trading Answered.)
Most brokers offer free demo accounts so traders can test drive the trading platform prior to opening and funding an account. This is important for several reasons. First, it gives traders the opportunity to use the platform to determine if it is intuitive, robust and user-friendly, or complicated. Secondly, using a demo account allows traders to practice making trades before money is on the line. This is particularly important in regards to entering and exiting trades, as well as placing profit target and protective stop-loss orders. Order entry mistakes – pilot error – can be extremely costly, and the best way to avoid these types of losses is to practice with a demo account, with no money on the line. Lastly, a demo account affords the trader the opportunity to learn the subtle tricks of a platform, which can increase efficiency in real trading. Knowing that a simple right-click of the mouse can close all open positions instead of having to go into a menu and sub-menu can save time and money.
Forex traders have access to a variety of leverage depending on the broker and the country where the broker is located. Leverage is represented as a ratio; for example, leverage could be 50:1 or 200:1. Leverage is a loan extended to margin account holders by their brokers. Using 50:1 leverage, for example, a trader with an account size of $1000 can hold a position that is valued at $50,000. Leverage works in a trader's favor with winning positions since the potential for profits is greatly enhanced. Leverage can, however, quickly destroy a trader's account since the potential for losses is magnified as well. Because leverage can cause catastrophic losses, it should always be used judiciously. (For related reading, see Adding Leverage To Your Forex Trading.)
Minimum Standard Account Deposit
Standard accounts are appropriate for experienced and/or professional traders, and trade with a standard lot, or contract, size of 100,000 units. A one-pip change in a currency pair is equal to $10 for EUR/USD. While many brokers require a minimum deposit of $10,000, others do offer lower deposits of $3,000 or even $1,000. With leverage, of course, the buying power is much greater than the minimum deposit, which is one reason forex trading is so attractive to traders and investors.
Minimum Micro Account Deposit
A micro account allows forex participants to trade in much smaller increments than a standard account. A micro lot is equal to 1,000 units of the base currency, compared with a standard lot's 100,000 units. A one-pip change in a currency pair traded in a micro account equates to a $0.10 change for EUR/USD. Mini-accounts are also available that have a size of 10,000 units of the base currency, and where a one-pip fluctuation is equivalent to $1 for EUR/USD. Designed for new traders, micro accounts are appropriate for traders who want to trade with less of an investment, or who are ready to put real money on the line – just not a lot of it. As traders gain confidence, more lots can be added to increase exposure. Many brokers allow traders to open micro accounts with as little as $5. It should be noted that some brokers offer micro accounts as "self-service" accounts, and no telephone or chat support is provided. All support is conducted through e-mail, FAQs and an online trading community.
Mobile forex trading is increasingly important to traders on the go, and provides a convenient means of staying on top of the markets. Many of the larger and reputable brokers offer the ability to access charts and trade entry windows via applications designed for the iPhone/iPad or Android operating systems. Typically, these applications are included free of charge with a funded trading account. Forex Broker Guide: Broker Support
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