Getting a reliable Forex broker in a competitive retail forex market is not easy. This is because there are thousands of companies out there who assure you a lucrative trading experience but deliver nothing. If you don’t know what you should look for in a broker then you are not alone. There are many investors who don’t know who a good broker is. Before getting to the steps you need to follow to choose a reliable forex broker, it is important to understand who a forex broker is.
What is a forex broker?
A forex broker is an intermediary between a trader and the network of banks that trade with each other, commonly referred to as interbank. So a broker may also be referred to as the salesman of financial assets. It is not clear where the term originated from but it is thought to have stemmed from old French.
The advent of the internet has changed the way client’s trade. Brokers have allowed traders to have access to accounts and trade through electronic platforms and computer applications. So back then, a broker was a person, but today, a broker is a computer application or software that offers platforms for traders to trade.
Define Your Trading Style:
To choose a suitable broker, you have to define your trading style. There are several trading styles a trader can use to make a fortune of forex trading. Selecting a right broker depends on your trading style. If your trade is based on long term analysis you may choose any good ECN broker. On the other hand, if you are a scalper, you may choose any market maker broker with a fixed spread. In general, the popularity of ECN broker is increasing day by day because of the flexibility of the platform and trade execution speed. If you are a news trader, you may choose good ECN broker, because, in many brokers, you will not be able to execute any trade in news time.
So when looking for a reliable forex broker, here is a step by step guide you should follow:
Step 1: Get a regulated broker
This should always be your first consideration when looking for a reliable broker. Are they regulated? If so, in which country? It is important to understand that different countries regulate differently under different environment and requirements. So it will be wise if a trader/investor chose a broker located in his/her country or where his activities are monitored by a regulatory agency. Also, an off-shore country may be more liberal with registration requirements than an onshore. So this should also be a consideration.
Here is a list of countries with dedicated regulatory agencies:
- UK
- USA
- Japan
- Euro zone
- Switzerland
- Australia
Step 2: Trading platform
After you have selected a list of regulated brokers, you should now analyze a broker’s trading platform and see how reliable it is. One might prefer a web-based application over a desktop application or vice versa, depending on an individual’s software and hardware characteristics. Before starting out, it is important to understand which type of platform suits you.
Advice: A good trading platform will not crash of freeze especially in times when global economic events or news strike. During such times, investors need stability. In addition, it is also important to ensure a trading platform is user-friendly. If there are additional charts and tools offered by a platform, it should also be fairly simple to access and apply.
Step 3: Capitalization
It is important to understand that if market makers are well capitalized there will be more credit relationships to create with liquidity providers and there will be more competitive pricing on offer. It is quite difficult for a broker to get competitive pricing without a margin deposited in a bank or lending institution with OTC nature of the market. This is why it is advisable to always do extensive due diligence on a broker before deciding on who to trade with. You know what it means if a broker-dealer states that they are safe to partner with because they trade in an interbank market.
Advice: If you are a beginner, you should shun from the interbank market. Such are the unregulated and loose conglomerate that work with investment banks, central banks, and other large corporations.
Step 4: Customer support
A reliable broker is one that offers customer support services. If you are a beginner, this is one crucial concept you need to check. Since Forex is a 24-hour market, a broker you choose should always be on to give assistance when needed. Support should also be in your language.
Advice: Also check medium used to see if it works in your case. A number of help desks will be available either through chat, email of phone. Does a representative seem knowledgeable and answer questions as asked? How representatives respond to your questions will tell you how they will respond to you in real situations when you will be in dire need of their help.
Step 5: Cost
The fees and commission structures can help you tell if a broker is worth working with. Unlike other exchange motivated markets, Forex markets have a unique feature most makers use to lure customers to trade. Some will assure no regulator or exchange fees while others will assure you no data fees or commissions. However, it is always important that you understand this advantage.
Advice: When it comes to evaluating costs, it all depends on your trading numbers like ratios, frequency, and other performance related statistics.
Step 6: Account type
Many brokers will offer two or more types of accounts. These accounts can be very small mini-accounts, smaller micro-accounts or standard accounts. It all depends on lots traded. For instance, a lot that consists of 100,000 units is a standard lot; one that consists of 10,000 units is a mini lot and a micro lot will consist of 1,000 units. There are those who will also offer you fractional sizes so that you can create your own position size. You can trade with a very minimum capital with a micro and mini-accounts. However, a standard account requires a higher minimum initial capital.
Advice: So a reliable broker should be one that offers more types of accounts. You will find this helpful when you start to understand more about leverage and money management.
Step 7: Added-value services
Any trader must have easy access to real-time charts, economic data, and news. So when looking for a reliable broker, always think of these and any other added-value service as a complete package. Addressing this point correctly before working with a broker ensures that a trader works with a firm that complies with basic standards of a broker that includes providing real-time news, charts and economic events.
Step 8: Leverage and margin call policies
Professional traders will always go for higher leverages and advise you to choose a broker centered on that feature. That shouldn’t be your criteria. It is key to understand that although a higher leverage can lead to higher profits, levels of risk also increase. You also need to understand that there are brokers who will give fixed leverage levels while others will regulate theirs depending on the currency being traded. They may also have special types of policies when it comes to carrying out a trade during weekends. A broker’s margin call policy should be taken into account when looking for a broker. There are those that follow FIFO (first in first out) process to close when current equity doesn’t meet margin requirements. The other will follow LIFO (last in last out) method. There are those who will simply close all trades.
Advice: Before opening an account, make sure you understand these issues since they determine who a reliable broker is.
9. Deposit and Withdrawal Methods:
Easy, flexible and wide deposit and withdrawal methods are important for choosing a right broker. Before making any deposit, read out their deposit and withdrawal time and method. A broker has to maintain the recommendation of regulatory bodies about deposit and withdrawal methods and time.
Bottom Line: Choosing a suitable and regulated broker is important for ensuring the security of your fund. If you are a newbie trader and want us to choose your broker, please do let us know via support department. Our team will assist you in finding right broker for you.
INTRODUCTION Making that extra income has never been that important especially in our times when real wages are on the Read more
What is forex trade? Forex trade means trading in foreign currencies of various countries against one another, in a decentralised Read more
Investment decisions are among the most critical decisions one ought to make. For this reason, before making the decision to Read more
Trading in foreign currency also known as Forex. It is an investment market that has significant liquidity over other markets. Read more
Hi.
Can you recommend a broker for me. I live in the United States.