How to choose a broker guide
Selecting the right broker is crucial for a smooth trading journey and safety of your funds. Therefore check the different deals carefully. Professionals agree that the following points must be observed when you intend to choose a broker:
Regulation and headquarters of the broker
It is extremely important to choose a broker with a license from a reputable regulator.
A regulator is a government financial entity that issues licenses for local financial service providers, overseeing and regulating the operation of the local financial market as well as setting rules & regulations, issuing fines and closing down financial entities if they act illegally.
The EU/US legislation for financial services are far more stringent than those of offshore jurisdictions. As a European financial service provider, it is much more difficult to obtain a broker’s license as the regulation is far more stringent and the quality standards of European brokers are higher. It is very important to check if Your broker has a license from a local financial regulator. Many vendors advertise with the term ‘broker’ without being licensed. An absence of license means, amongst many things, that your funds are at HUGE RISK, the trades You execute and the “balance” of Your account are nothing more than just numbers on Your screen and most probably You won’t be able to withdraw any funds from this fake broker. Sometimes they will allow the client to withdraw a small sum of his initial deposit, the client thinks that they are trustworthy, deposits even more money “on his account” not understanding that he/she is even deeper in the trap.
ALWAYS CHECK WHETHER YOUR BROKER IS LICENSED BY A REPUTABLE REGULATOR!!!
How can I understand whether or not a regulator can be deemed reputable? – You may ask.
The rule of thumb is the following: If the broker in question is licensed by a regulator from a country that You can’t point on a map – DO NOT trust that broker!!! Just choose one from a selection of brokers on simplyforex.com. All brokers we review are licensed; As the retail investment market is international, most reputable brokers have business representation in several jurisdictions, most are licensed by several different regulators, even further increasing their trustworthiness.
Security of client funds
A very important question when choosing a broker is whether or not Your funds and funds of Your broker are stored on one bank account. This is important in case of insolvency – your money will be part of the bankruptcy assets of the broker and will be used to cover broker’s liabilities if Your funds and Your broker’s funds are mixed and held on one account. This risk is not insignificant. Likewise it is important that your broker cooperates with reputable banks and has an omnibus account where every customer is allocated his/her own private place to store funds where they are stored separately from funds of other clients as well as separately from Your broker’s funds. If this is not the case the funds can be very difficult to separate Your funds from those of Your broker in the event of a Your broker’s insolvency/financial crisis etc.
Service
Your broker must be accessible during trading hours in your language or at least in English. If you do not have access to the platform for some reason and urgently need to place an order it may lead to significant losses if your broker is not reachable. Phone orders and cancellations should also be offered. You should also pay attention to the quality of customer service so that more complicated issues can be resolved. Many call center agents who work daily for several companies are neither motivated nor properly competent to respond to the situation. Furthermore it is important that your broker provides You with good learning materials as well as interesting seminars/webinars for continuous development of Your trading skillset.
Platforms
There are hundreds of trading platforms on the market. However you should be satisfied with the best offer only. The most popular and most reliable platform is Metatrader 4 and Metatrader 5 which totally satisfy needs of million of traders around the globe. It is a platform developed by a company called Metaquotes and their platforms MT4 and MT5 have been implemented by thousands and thousands of brokers around the globe. You can test it for free by registering for a free demo account. There are a lot of brokers who created their own proprietary platforms for their clients to trade from. Those proprietary platforms will be covered in the review of brokers who created them. Equally important is good handling & supply of trading data by the platform. If the platform does not supply the necessary stability and offer no possibility for technical analysis it is advisable to change your broker as there is a big chance that broker is operating illegally. There are exceptions to this rule such as trading platforms that are specifically created to simplify trading, often just have the chart that shows the Bid and Ask price and two buttons – BUY and SELL.
Fees
Low fees are important as the greater Your trading volume will become the greater Your fees will be and finding the best deal for execution of Your trades should complete the list of things You should check/find out in order to find a decent broker. Always remember that different brokers will have different fees for different instruments. Spreads on Forex might tighten/widen depending on market conditions so checking them on demo at one instance might not show the full picture! So have a list of potential brokers, request information from each broker on fees for the particular instruments You would like to trade, if phone orders cost extra money, if there is an inactivity fee or fee for not reaching minimum trading volume and how much are the fees for the account management, if any.