It could be a complicated task to select the correct forex broker. Selecting a business partner providing an investor access to the trading market while ensuring costs are low and the investor’s funds safeguarded is difficult enough, particularly when trading online with a broker located overseas.
Again, identifying a broker who would deliver exceptional customer service is even more challenging.
Several traders tend to look at the cost aspect and choose a broker promoting the low spreads. However, it is vital to comprehend the impact that these tight spreads could have on the level of service an investor would receive.
Reliable brokers have an excellent understanding of their cost structures and they have to recover costs by one process or another in order to stay in business.
If a broker provides very low spreads, then the broker has to compromise somewhere else within the business structure (either by increasing fees or by reducing the quality of the services).
There are two facets on which brokers usually compete – service quality and cost. It would not be possible for any broker to be the best in both fields. Hence, any broker offering the lowest probable spreads would be compromising on quality elsewhere, or be charging unknown fees, or implementing poor business practices.
Traders may be able to identify inefficient customer service and hidden fees, but poor business practices could be difficult to identify and may have a negative impact on the trading success.
Since a broker highlighting the low spreads does not provide good quality, investors may not be able to get their issues resolved quickly.
However, there are situations in which certain forex traders would gain from opting for tight spreads. Algo traders relying on complex algorithms and systems to implement successful trades would benefit from selecting the low spread every time.
The efficiency of algo trading depends on a high volume of trades at low spreads in order to generate a profit. Since transaction costs must be paid on each trade implemented, a low spread ensures that these costs are kept down to a minimum.
On the whole, for most of the forex investors, when it comes to deciding between the high-quality forex brokers, attention must be given to the service quality along with the tightness of the spreads.
Evaluating all the pros and cons of every broker could make the difference between implementing profitable trades and a costly mistake.