FOR THOSE starting out in forex trading, one of the first challenges is selecting a forex broker. This can prove to be a daunting task but, like any other product or service, it is generally the best combination of price value and quality of service that leads to the final selection. Here are some points to consider.
The direct cost to place a new forex trade order is typically represented by the “spread”. This is the difference between the price at which a customer can sell or buy from his or her broker. This spread difference represents the broker’s fee for processing your order and should be clearly displayed when you place your order request.
Be aware, however, that some brokers also impose additional commissions and fees such as account maintenance premiums and inactivity fees. Not all brokers do this – OANDA, for instance, charges only the spread on retail forex trading accounts – but it is up to the trader to be aware of extra fees beyond the advertised spread.
Further complicating the pricing issue is the fact that forex market prices fluctuate very quickly. In the time it takes for your order request to be sent to the broker and ultimately executed, the price could change. This is known as “slippage”.
While traders understand that some degree of slippage is unavoidable, you will want to know that your broker is not using slippage as an excuse to avoid giving you a fair price. Some brokers will “requote” a price – or reject the order request altogether – if the market price moves against them.
Either way, the result is the same; your trade request remains unexecuted.
To ensure trades are processed, OANDA never requotes or rejects an order request – all trades are executed at the prevailing market price. And to protect traders from the inevitability of some price slippage, OANDA permits traders to include special instructions with all new order requests.
These instructions establish upper and lower price bounds for the order that ensure that, as long as the executed price falls within this range, the request will be executed. If the updated market price falls outside this range, the request will be cancelled as instructed by the trader.
This approach represents the ultimate balance between getting prices at the expected rate, while still ensuring order execution.
Paul Hayward is head of sales at OANDA Europe.
For further forex broker considerations, please visit www.fxtrade.oanda.com/why/
Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.