Perhaps you are considering or have already decided to enter into the fascinating and potentially lucrative foreign exchange (FOREX) market. You may now be wondering how you should go about choosing one broker over another. As you might guess, each has advantages and disadvantages. This article will help you to explore some of the aspects of doing business with three of the top retail FOREX brokers in the USA.
This author has test-driven the demo platforms provided by these FOREX brokerages. They are Oanda, FX Solutions and InterbankFX. These brokers were chosen for review due primarily to their popularity among retail traders. Some of the basic findings are incorporated into this article. A more extensive coverage of the areas of comparison is beyond the scope of this article. Depending on the individual trader’s preferences, there is, however, enough critical information supplied here to provide a basis for making an intelligent choice from among the several brokers named.
Cost of Entry
A very pertinent area of comparison is the minimum amount required for opening an account at each broker. Opening a trading account at Oanda requires only $1. Risk concerns aside, this theoretically opens up the window of opportunity to virtually anyone, including those well below the poverty line. Of course, a more realistic view for wealth building would require a substantially higher amount. Financial longevity and successful trading is difficult at such a low level of capital investment.
The minimum amount required by both FX Solutions and InterbankFX for opening a live account will set you back $250.00. Although this is substantially higher than what Oanda requires, most investors would probably want to start somewhere near this level, at a minimum. The rationale for needing a higher starting amount has to do with the potential for draw-downs. A draw-down occurs when your trading position is in the negative because the market is trending against the direction of your profit target. Consequently, the lower your capital investment, the quicker it tends to disappear.
Customer Friendliness
As for rating the customer friendliness of each platform, it appears that Oanda’s platform may take the top spot. The trading charts are above average and built directly into the platform. Although all of the platforms have quite a few bells and whistles, ease of navigation must be present to win the top spot. For example, if you trade based on the release of certain economic news events, you will undoubtedly find that it takes less time to set up on Oanda than it does on the other two platforms. Time is of the essence in the fast-paced news trading environment. Depending on the type of trader you are–news trader, short-term, long-term, etc.–you may not need most of the features offered on any of the three platforms.
Leverage Allowed
Beyond the basics of low-cost account setup and customer-friendly platform, Oanda seems to take a backseat to the other two brokers. This is particularly true in the area of leverage. Leverage is the privilege most brokers give you of trading more money than you actually have in your account. Higher levels of leverage have the potential of boosting your profits tremendously. Quiet honestly, your losses can also be enhanced greatly, if you end up on the wrong side of a trade. Leverage is a two-edged sword. The maximum leverage allowed by Oanda is 50:1, while InterbankFX and FX Solutions allow a maximum of 200:1 and 400:1, respectively.
Spread
All Forex brokers must be compensated for the service they offer in allowing you to utilize their platform to place your trades. Rather than earning commissions, the brokers are paid a spread, which is the difference between the ask and the bid price for the currency pair you are trading. The higher the spread, the more the broker gets paid. Consequently, investors will prefer a broker with comparatively low spreads, all other things being equal. Other than at or near the time of an economic news release, Oanda tends to have lower spreads than InterbankFX or FX Solutions. This advantages lessens around news trading time when Oanda’s spreads tend to increase dramatically, as does those of InterbankFX. The distinction here goes to FX Solutions, whose spreads are constant, even during news time, and only slightly higher during calmer market conditions.
Connectivity
Finally, connectivity issues must be taken into consideration.. It appears that the Oanda platform is the most problematic, time-wise and technologically, when new users are attempting to connect. Some users attempting to go at it alone, without the assistance of tech support, find it difficult, if not impossible, to connect before finally being informed by Oanda’s tech support that they needed the latest version of Java to access the platform. Oanda also seemed to have the greatest likelihood of users being disconnected during high-traffic times, such as during major news releases. Of the three, FX Solutions seems to be the most stable, with little or no known instances of major disruption. Past problems with InterbankFX users being disconnected during high traffic conditions seem to have been successfully addressed by the broker.
In the end, the trader must decide which issues are of priority concern and choose accordingly. By the way, there is no law, rule or policy which would prohibit a trader from having accounts at more than one broker. Such an arrangement may allow the trader to take advantage of the various profit opportunities, based on the strengths and weaknesses of each broker.
Oanda, FX Solutions and Interbankfx are trademarks of the companies by the same name and their affiliated companies.
Sandy Robinson, J.D.
Copyright 2007