It can be a tricky task to choose the right forex broker. Choosing a business partner who can give you access to the trading market while keeping costs low and your funds protected is difficult enough, especially when trading online with a broker that may potentially be located overseas, but finding a broker that will provide good quality customer service too is even more challenging.
Many traders tend to look at the cost factor and opt for a broker that actively advertises their low spreads, however it is important to understand the affect that these tight spreads may have on the level of service you receive as an investor. Trustworthy and reliable brokers have a good understanding of their cost structures and they have to recoup costs by one method or another in order to be able to stay in business. If a broker offers extremely low spreads, they have to compromise somewhere else within their business structure, either by increasing fees or lowering the quality of their customer support services.
What Effect May Low Spreads Have on a Broker’s Service?
There are two aspects on which every competing firm of brokers must compete – quality of service and cost. There is no way to be the best in both fields, so you can be certain that any broker that purports to offer the lowest possible spreads, they will be cutting quality elsewhere, or be charging hidden fees, or executing poor business practices in some other way.
While traders are able to spot poor customer service and hidden charges through a comparison with competing brokers or by reading independent user reviews, bad business practices may be harder to spot and could have a very bad effect upon your trading success. These practices may present themselves in numerous ways, for example repeated re-quoting which will delay your execution orders or slippage, where your execution order will be executed at a different price to the one that you sent. Although this may occur occasionally in a volatile market or in the case of an abrupt change due to a major news release, it should not happen in a normal market situation and is a sign of very poor business practice. Another problem which could occur with a broker who has bad business practices is spread manipulation, in which the broker will enter quotes that cannot be found elsewhere in the market. Once orders are put in that will amount to a major move, traders will find that quotes will initially move in the opposite direction to clear all stop-loss orders and block traders from making a profit from the move. The broker will then take the profit from all of the closed positions.
Investors who opt for a broker who boasts low spreads over high quality service may also find that the level of customer service provided is very poor, so that if they have a problem or a query that needs addressing, they may discover that the help options are limited, the customer support team are difficult to contact, or that the support staff lack knowledge and are unable to assist. Brokers need to be able to generate an adequate income in order to be able to provide the necessary standards of customer service to be able to compete with the best in the industry, and they cannot do this by offering the lowest possible spreads as there is no profit margin in this for them.
Are There Any Situations in Which a Trader Should Choose Low Spreads Over High Quality Service?
As with everything in forex trading, there are two sides to every coin, and there are always some circumstances which go against the grain. While it is recommended that most forex investors opt for high quality service rather than low spreads, there are some traders who would benefit from going for tight spreads over the level of service. Algo traders who rely on complex algorithms and computer programming to execute successful trades would benefit from choosing the low spread every time. The effectiveness of algo trading relies on a high volume of trades at low spreads in order to generate a profit. As transaction costs must be paid on every trade executed, a low spread ensures that these costs are kept down to a minimum helping the investor to gain multiple rapid small profits.
Overall, for the majority of forex investors, when it comes to making a decision between the high quality forex brokers on the market today, attention should be paid to the quality of service on offer as well as the tightness of the spreads. Weighing up all of the pros and cons of each broker can make the difference between executing trades that are a profitable success and a costly mistake.