I know the basic stuff about what to look for when opening a trading account, and I’m also aware of that I have to do my due diligence to choose wisely.
The difference between ECN and spread-based firms, the risks of small bucket shops etc…
At the moment I’m thinking about opening an account at some of the following brokerages:
Oanda USA (or Europe?)
Armada (I don’t know anything about this; just found that in the LMAX ForexFactory thread some claim they are also good. Also, on the MyFXBook Forex Brokers Spread Comparison site you can see that they have very low spreads.)
I will mainly focus on short term, intra-day trading, stop hunt like trades, intraday news trades…
Any hints against these companies or some specific advice regarding them? E.g. execution speed, requotes, slippage…
Or maybe you would suggest to me some other brokers instead?
The key things to like to look for in a broker are:
Security of Funds (avoid an outright scam/fraud like PFG type, and avoid the MF Global trades, where they tried to aggressively expand outside their core broker competence and place prop bets)
I don’t really have any foolproof methods to avoid the broker blowups, even though I have been successful in dodging them thus far. I would say to use common sense and avoid the brokers based in weird countries like Belize or something. Avoid the brokers that keep spamming you about zero spreads or amazing cash back or rebates if you trade a certain volume within ‘x” amount of days. (you don’t want to be forced to trade big position sizes just to get that promotional bonus. Perhaps try to pick a broker that can be backed by a big company that can provide liquidity to it if it gets into trouble.
If the company is public, then you can do some analysis on their financial statements, etc. You can set price alerts if the stock starts dropping. For example, I vividly remember that in the days and weeks prior to the MF Global bankruptcy, the share price was dropping precipitously. If a brokerage customer had a price alert when MF Global broke support, they can see that potentially something is wrong, do some basic news and scenario analysis. and go investigate, and if there is any remote chance of any wrongdoing, to wire the money out of their account before they go bankrupt.
Similar situation happened with Lehman Brothers in 2008. In the weeks and months prior, the share price was collapsing, so any brokerage customers could have potentially seen the liquidity and counterparty problems and stopped trading with Lehman weeks or months before they went bankrupt.
I believe the two forex brokers that are public are FXCM and Gain Capital (Forex.com)
Do You Want to Trade other markets besides forex? Or if it is only a 5k account, then forex only to start?
If you only want to trade forex for now, then you don’t have to worry about this so much. But if you want to trade futures contracts, or stocks, then someone would have to figure out if they want their trading capital split among different brokers or if they want a broker that offers them the ability to trade forex and other financial instruments.
How Flexible You Want To Be in Position Sizing
Do you want exact position sizing? Or do you not mind if you are limited to only position sizing with 1k lots or 10k lots, etc?
For example, if someone only has a 5k account, then they probably don’t want to go with a broker that only offer 100k standard lots, because that would be $10 per pip or so, and every 100 pips = $1,000 so you can blow up fast if you get just 3-4 trades wrong. So if someone only has 5k account, then they have to find a broker that offers 1k lots or 10k lots ($0.10 per pip and $1 per pip, respectively).
Oanda offers perfect position sizing. You can position size down to the single dollar amount that you want. So if you have to place an order for, say, 14,597 currency, then in Oanda it is easy to do that. But with other brokers you may only be offered the option of either a 10k or 20k order size.
I have traded with Oanda in the past, and they are fine for regular intraday and swing trading. Their only disadvantage is that they can widen spreads during news more than their natural amount and take longer to get them back to normal than the real market. So if you want to do quick news trading after the FM spike with Oanda, it can be more difficult because their spreads can be higher during news and stay higher for longer than the real market.
I have gravitated towards more companies that can just give me barebones execution and speed, etc. I really don’t care all that much about the charts they offer. If they have good charting, then that’s fine. If they don’t it won’t be a dealbreaker for me, because I can just use charts from somewhere else. I like Interactive Brokers, but sometimes I don’t like their charting. So I can use some free charts from Metatrader or some other service. I don’t NEED charts to trade, but I still most definitely use them to see the volatility and record the news, etc, and they make my life easier when I can assign the information flow, macro reasons, scenarios to the reasons why the price moved on the chart, etc.
I am not sure what country you are in and whether you can open accounts in which countries, etc.
As for your broker thoughts: I think Oanda is fine. I don’t know much about Armada, although from their website with them saying 500:1 leverage and zero spreads, that looks kind of shady to me, so I would avoid Armada. I would say better Alpari UK rather than Armada just from the looks of it.
As for brokers in the United States, I haven’t used nowhere near all of them, but you can consider:
As for spread comparisons, I used to do that many many years ago when most brokers were offering spreads on EUR/USD of 3-5 pips, etc. I would say most legit brokers offer roughly similar spreads, etc, so I don’t usually fret over it. I would rather spend more time and energy finding the next good trade rather than if a broker is going to give me 2/10th’s of a pip better pricing, etc.
Above all, don’t despair about struggling to find the right broker. This is the year 2013, and it is the best time to be alive, and the best time to be trading with the technology, speed of execution, and access to trading by the people around the world. You will find the solution. If people made a lot of money decades ago by telephoning orders into the pit and using delayed quotes, being forced to wait many seconds or minutes or hours for execution and confirmation, then you can most certainly be sure that trading is far easier nowadays than it was back then.