How to choose a Forex broker that will make you money, not nerves

Tips for choosing a Forex broker: How not to fall into the hands of fraudsters

In order to trade on the Forex market (Forex) or any other financial market, you need to have a trading account with a Forex broker and, logically, to have funds in this account.

Basically, a Forex broker is a company that deals with buying and selling in the financial markets, following the instructions of traders. Brokers charge a commission for this service, which in some cases may be included in the spread between the buy and sell price. There are a large number of online brokers nowadays, so it is difficult to choose one that provides a good service. Therefore, we will cover a few basic guidelines for choosing the right broker for your needs.

Research the reputation of the broker

An impeccable reputation is a must. It is impossible to have hundred percent satisfied customers in any kind of products or services, but even so, before opening a trading account with any broker, a trader should check the reputation of the Forex broker. This can be done by simply exploring the Internet, searching for posts and comments on forums, blogs and specialized sites and analyzing the general tone of the posts. You can also search for information and opinions on social media sites such as Facebook or Twitter. Ideally, the broker should not have any problems related to withdrawals, opening a trading account, etc. Today online media allow interested clients to promptly report about questionable actions of a broker, and it is easier for potential clients to check the company's reputation by a simple search on the Internet.

That is why serious Forex brokers avoid any damage to their reputation, as they are well aware that in the long run it may lead to loss of clients and difficulties in attracting new ones, or even to problems with regulatory authorities, if the broker is regulated.

In the case of brokers with questionable practices, it is almost impossible for their dissatisfied clients not to share their bad experiences with these companies, so a trader can easily recognize when a company has serious problems related to withdrawals, trading order pricing and execution, customer service, unfair terms and conditions, etc.

Whether the broker is regulated

One of the features of the foreign exchange market is that it is not strictly regulated. However, this does not mean that brokers offering their services on this or any other market are not regulated; on the contrary, today there are several financial services regulatory bodies, particularly in Europe and the United States, that monitor the legality of these companies. Therefore, it is practically necessary for a trader to choose a broker that is regulated accordingly, as otherwise his money may fall into the wrong hands, and if something goes wrong, there will be no recourse.

There are several regulatory bodies, both public and private, but it is undoubtedly best that they be public, since in principle any public entity seeks to protect the interests of its citizens. For this reason, the least you can do is choose a broker that is registered and regulated by the state's financial regulator. If a broker claims to be "regulated" by a private organization, it is best to exercise caution.

Regulatory bodies for brokers

  • USA: FCM (Future Commission Merchant);
  • UK: FCA (Financial Conduct Authority);
  • Australia: ASIC (Australian Securities and Investments Commission);
  • France: AMF (Autorité des marchés financiers);
  • Cyprus: CySEC (Cyprus Securities and Exchange Commission).

Note that many brokers have their main offices in tax havens and are regulated by local organizations. However, because the laws in these countries are so loose on financial services companies, these regulations don't offer too many safeguards.

Among the well-regulated brokers, it is best to choose those that have an impeccable track record with regulators and a capital base that provides them with a strong enough financial foundation to operate smoothly. In general, the regulators that are most valued for their good work, experience and reputation are the NFA in the US, FCA in England and ASIC in Australia.

How to Check Forex Broker

Check the broker's trading platform

A very important aspect to consider when choosing a broker is the trading platform they offer. All online brokers allow the user to operate in the market in a simple way through a trading platform or stock market software, an application that serves as a link between the operator and the broker. This platform is the workstation that allows the investor to do almost all the work of analyzing the market, and at the same time it is the means by which he makes his investments in the stock market and the Forex market, which accounts for its great importance.

In most cases, brokers offer free demo accounts that allow clients to test the trading platform, its main advantages and disadvantages without risking real money. When choosing a broker, it is important to try out the trading platform before opening a trading account and depositing money.

What to pay attention to when choosing a platform

1. Availability of an account summary where the client can:

  • Check account balance;
  • View open positions;
  • Examine the history of transactions;
  • Learn the available margin;
  • Evaluate trading results.

2. Real-time quotes for:

  • Currency pairs;
  • Other instruments traded on the market.

3. A set of technical analysis tools:

  • Integrated indicators of technical analysis;
  • Ability to apply indicators to charts in real time.

Types of platforms

Another important aspect regarding trading platforms is that they can be divided into two types: web-based platforms, which do not require downloading, and downloadable platforms, which, like any other computer program, need to be installed on your computer.

Online platforms, as their name suggests, are used through a web browser. They are generally based on the JAVA language and do not require software to be installed. Software platforms, on the other hand, must be installed on a computer. These platforms are generally faster and better for market analysis than web-based platforms because they have more features. In most cases, these applications are designed to run in a Microsoft Windows or MAC environment.

Micro and mini accounts

The capital a trader has available to open an account can have a crucial impact on the choice of broker, as each company requires a minimum deposit to open an account. Some brokers allow you to open an account with as little as euro 1, while others require a minimum deposit of euro 10,000 or more. Of course, this is not the only thing to consider as each broker has a set minimum trade size. If the minimum single trade size is very high and the trader puts little money into the trading account, they will have very little margin to manage the risk of their trades.

Many brokers offer mini accounts that can be opened with 100 euros and the minimum trade size is one mini lot, which is equivalent to 0.1 standard lot. Some brokers offer micro accounts that can be opened with less than 100 euros and trade in micro lots (equivalent to 0.01 lots). These accounts allow you to learn to trade with real money, but with a small amount of capital at risk.

Brokerage commissions

The spread is the amount that the broker adds to the price of an instrument, and it is the profit he makes for each trade made by the operator. On the other hand, a commission is a fixed amount that a broker charges a client for executing a trade, and it depends on the size of the trade and the instrument traded. A broker that adds a spread to quotes usually does not charge a commission, and vice versa; this of course depends on the type of broker, as we will see next.

Swap can be defined as the rate charged by a broker for maintaining an open position overnight (rollover) and it can be either positive or negative, in which case it can be beneficial to the trader. The swap corresponds to the difference between the interest rate of the base currency of the pair and the interest rate of the quoted currency. Logically, the greater the difference between the two rates, the greater the rollover.

Safe Forex brokers

Different spreads depending on the broker

As we saw earlier, the spread is the most important component of brokerage commissions. The spread is measured in pips, but to calculate the total cost associated with the spread on a trade, you need to consider the size of the lot being traded. Typically, each currency pair has different spreads with the same broker, due to differences in liquidity for each pair. As a result, the spread between EUR/USD is lower than, for example, between NZD/USD. Spreads often differ from broker to broker and can change over time due to different market conditions, such as the availability of more liquidity. Depending on the time of day, a broker may offer higher or lower spreads. However, some brokers, known as market makers, offer fixed spreads most of the time.

Leverage and margin requirements of the broker

At this point, the trader needs to be cautious as leverage is a double-edged sword that amplifies gains and losses. Hence, the issue of leverage and margin should not be taken lightly and a trader should carefully analyze what is best for him. European regulations limit Forex leverage for retail traders to 1:30 on major currency pairs. You can get higher leverage, for example with an Australian broker, but a mid-level margin requirement that allows for adequate risk management is preferable.

With regards to leverage, many traders make the mistake of assuming that the higher the level of leverage offered, the better it is for them. However, in this case, leverage should also be used with caution as it can lead to large losses. As for the leverage levels of up to 1:500 offered by some brokers, they can bring in a lot of money in a short period of time or leave a trader's account without funds.

Quality of customer service

A quality broker should have a good customer service that is available 24 hours a day, at least Monday through Friday. Usually, brokers allow their clients to communicate with customer support staff via email, phone and chat on the company's website. The support team should be able to resolve any doubts that a customer may have about the services provided by the broker. It should also respond quickly and not make the client wait for days or weeks for a response.

Speed of execution and stability of the company's servers

Financial markets such as Forex are characterized by periods of rapid movement and high volatility. For this reason, it is important to have an account with a broker whose servers are highly stable (servers that almost never go down) and allow the trading platform to execute orders quickly and efficiently. This way, it can ensure that the trader is able to open a market position at the price he wants, in order to avoid the so-called splits and requotes that cause the trader to enter the market late and sometimes at an undesirable price, leaving him at a disadvantage.
 
Taking into account all the above mentioned aspects you will save yourself from falling into the clutches of fraud brokers and will be able to protect yourself from unnecessary hassles, so carefully study the reputation of brokers and always keep in mind the criteria by which you need to evaluate brokers.

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