Choosing a broker: Part 3 – Trading conditions

After deciding on the regulation and the trading platform you would like to use, it is time to take a look at the trading conditions.

Spreads and commissions

As we mentioned earlier, you should be very careful about the trading cost you incur from spreads and commissions. Failing to do so can result in misleading results and lead to disaster when the actual trading starts.

In this perspective, one of the factors you should consider when choosing a broker are the trading conditions. Most of the brokers are obliged to publish their conditions on their websites. You should be able to find information about the spreads and the commissions without any problem. Unfortunately, it is almost impossible to find any information about slippage. Therefore you should track your execution and find a way to measure it yourself.

It is important to know how to compare the different trading conditions. You can go back to the backtesting chapter to review the different types of conditions. There you will also find a practical example of how to compare them.

Leverage

If you are trading Forex or CFDs you will easily find brokerage companies that allow margin trading. Depending on the regulation you can get up to 1:500 leverage for your deals. As we discussed earlier, utilizing leverage of 1:4-1:6 would be enough for most of your trading systems, so you can stick to the modest levels of 1:10-1:30 offered by properly regulated brokers. Of course, having high leverage doesn’t force you to use it all the way up. You can continue trading within the levels set by your money management, just block less money as margin collateral.

If you are a retail trader and want to start trading stocks, especially in the US, you would probably not qualify for margin trading. However things are changing constantly, so you’d better check the conditions with your broker.