Undoubtedly the choice of trusted Forex broker company is the most important step the beginner trader takes and should be taken as serious as possible, if not you jeopardize your all the chances to make your trading successful and safe, which is extremely important in terms of your funds. You need to understand that the Forex broker company you choose determines your future trading experience: it equips you with the trading platform, provides you with the opportunity to deposit and to withdraw your profits with no restrictions and ensures the safety of your capital.
So today we will talk about the essential aspects each novice trader must take into consideration while choosing the trusted forex brokers. Now you won’t have to go through lots of information and open dozen demo accounts to test the brokerage companies, we`ve already done it. Below you will find the most important characteristics you should look for.
First, we should mention that some traders are looking for domestic brokers, i.e. the ones registered in the trader`s country. Of course, it`s a trader`s decision to trade where he wants but one should remember that we live in the 21st century and everything is done online. On the other hand, choosing foreign broker will give you more companies to choose from than, let`s say, you live in Croatia and wants to trade with the local broker. How many of them you can choose from? 1? 0? Exactly. Having your broker in your own country will not give you any guaranty, there is a lot of other things to estimate the reliability of the company and we will help you with that. Once you are done reading this article you will be able to draw your own conclusions.
How to choose Forex Broker – 9 main criteria of selection
Before making any decision, remember that there must be no hurry, you need to double and triple-check all the information and make sure not to get trapped in those “only today” offers. Financial market will not vanish tomorrow, so take you time and consider these 9 aspects that would come in handy.
Criterion 1: Reliability and reputation
The first thing you should check is what name the broker attained throughout the period of operation. Just take into consideration that not all reviews are objective. Hence negative feedback can be written by competitor brokers trying to compromise the company`s reputation. Beginner traders, that lost all the deposit due to their ignorance, also can write angry comment with baseless accusations. Positive reviews can also be biased. Brokers often pay for made-to-order positive feedbacks to improve their rates. Such comments, as a rule, are easy to recognize. One way or another, remember that reviews should be used as a supplementary element of shaping assessment of the brokerage company.
Furthermore, pay attention to the operating time, that is how long the company has been in business. This indicator is indirect, but evades redundant risk. The logic behind it is super straightforward - if the broker has been operating for a long time and has not shut down yet, it is already a good sign. And if the company opened just yesterday, it is a dark horse and trading with them might be very risky.
Criterion 2: trading conditions offered
Another important criterion to look at is Commissions & Spreads charged by broker. Here any trader should understand that brokers make money by charging traders a spread. The spread is the difference between the buying price and selling price. For example, if the Bid & Ask price for the EUR/USD currency pair is 1.0875/1.0878, this means the spread is 3 pips.
As a Forex trader, you will stumble upon 3 kinds of trading cost structure debited by a broker:
• Fixed spread – spread doesn`t change and you know what amount will be charged before opening this or that position.
• Floating spread – this spread is changing and always moving determined by the volatility of the market.
• Commission fee – this is calculated as a percentage of the brokers spread. You should know what amount will be charged before you open any trade.
Indeed, for traders used to definiteness with their trading costs, fixed spreads will be the best solution. Traders who want to pay a smaller spread would rather choose floating spreads. After all, which is better will be determined by your specific trading goals and circumstances.
Obviously, it is desirable for the trader that the spread would be as small as possible, and the Forex broker other way around. At the same time, Forex broker cannot raise the spread much because of the competitive companies. The best asset for you to compare is the popular currency pair EUR/USD. The average spread on it is 1.8 – 2, if you find a broker with higher spread – keep searching.
Criterion 3: Minimum deposit amount
If the minimum deposit to open an account is too big, it will not be suitable for beginner traders who want to start with a small capital. Again, it is better when there is a choice and a trader can start with different minimums. Big brokerage companies usually offer Cent accounts which is perfect way for a beginner to get started.
Criterion 4. Order execution speed
Now almost all brokers are equally good at the fourth criterion: trades are executed instantly almost everywhere. Of course, with huge volumes, there are serious slippages*, but there is no way to get away with it.
*Slippage – is the market situation when the order is executed not at the specified price, but at the nearest one due to the lack of the buyer/seller of this asset at the moment. E.g. We open an order to buy the EUR for 1.2015 USD, but at the time of opening the trade it was sold only for 1.2020, as a result we slipped.
For traders whose work with the "scalping" strategy, the execution time of orders is crucial and should be done in a fraction of second. Very often, the movement of the price of a currency pair in 2 seconds can be 30 or 50 points and when the order is executed after pressing the button, for example, in 2 seconds, it is no longer relevant. It is better to check that on demo account first.
Criterion 5. Leverage
The leverage will not affect the trade in any way, but the higher it is, the larger the trader's capacity. E.g. You want to buy a currency for $10,000, but if the leverage is 1:100, then with a capital of $10 you can open a trade only for 1000, and if leverage is 1:1000 – you get an access to 10,000.
Criterion 6. Easy deposit and withdrawal
The trader comes to Forex to make money, and he will should know how to withdraw the profits. Please note: depositing and withdrawing methods may vary, so before making a deposit check what are the ways for you to withdraw from your trading account and make sure it`s suitable for you.
The main payment methods are bank transfer, credit card, e-wallets (there is a bunch of them, check if broker is working with the one you are currently using) and crypto-wallets. If the broker has his own plastic card, it is a good sign - the company thinks about convenience of clients.
Please note that verification of the account by sending scans of the ID and any other documents required is a standard procedure; it`s not a broker`s whim but one more mean of protection of your funds (apart from all the banking requirements and rules), so you confirm that you are the one owning the account and nobody else misuses your banking details let`s say.
Criterion 7. Data Security
To open an account with a forex broker, you transmit a lot of personal and financial data. The first thing to look for is a Secure Sockets Layer encryption, popularly known as the SSL. If you find a brokerage website that is not secured with this encryption, then run away from that there as quick as you can. Without SSL encryption, critical client`s information can easily be stolen and used by fraudsters.
Some brokers go a step further by offering a two-factor authentication process as a requirement for logging in. With this extra layer of security your account is much more difficult to hack.
Criterion 8. Customer Support Level
Most beginner traders are disposed to forget to reckon with customer support when choosing the broker to open an account with. They may not understand how important the customer support is in their trading experience. Because regardless of how experienced or knowledgeable a trader might be, there will always come a time when customer support`s assistance is needed. When it happens, you`d rather be sure that there will be no difficulties getting in touch with them. So, it is essential to check if the broker is able to provide you with reliable customer support.
Find out if there are multiple ways of contacting customer support. Most brokers offer several means of communication such as email, live chat and phone.
Criterion 9. Loyalty programs and bonuses
Competitions and possibility of receiving bonuses – only plus for the broker. Again, compare the terms and conditions of the bonus programs so that in the future there will be no issues and misunderstanding.
Many dubious companies first give traders money, and after that it`s found out that this bonus needs to be “turned over” or cannot be withdrawn and even “freezes” your deposit.
In order not get in such situation, read thoroughly all the terms and ask your manager if you have any doubts.
How to avoid mistakes when choosing a broker
Many newcomers, wishing to make sure that the brokerage company is reliable, rush to analyze reviews on the Internet. Once they realize that the negative ones prevail, they get scared and terminate working with the broker.
So, this is what happens - most traders lose their money on the financial market because of lack of trading experience and knowledge, so the bulk of the feedback on the brokers was and will remain negative.
Analyzing feedback is still needed, but you should pay attention not to people's impressions, but to the quality of the service that the brokerage company provides, and the level of customer support.
If the account manager/representative of the broker reacts to each complaint and feedback, this is already a plus. If there are no complaints about a platform, glitches, false delays in withdrawals – it is another positive feature.
If the company you are thinking of offers Cent accounts, deposit several dollars and then try to withdraw. In such a way you can determine is your request will be processed with or without any delays. If you do not accept any bonus offered, then there should be no issues with getting your deposit back.
The choice of a brokerage company should be taken consciously and as serious as it`s possible: there is a whole lot of brokers who want to get commissions from the trades you open, everyone tries to outpace competitors, so there is always a choice
It should also be remembered that the aim of the person offering to trade on the financial market is to make us register, and the aim of any broker is to motivate the newcomer to start trading with real money as soon as possible.
That is why you can't blindly trust managers who are luring you to the trading, it is not necessary to deposit on the account unless you are sure that this is the broker you have been looking for.
As we`ve mentioned above, there are many criterions to be taken into consideration while choosing the perfect brokerage company. Nevertheless, with the help of this article, you should be able to determine which broker suits you better than others basing on your financial goals and needs. Remember to take your time when making up your mind because a bad decision can and will be expensive. Performing a bit of homework and comparing one broker to the other will play a vital role in your future success and will help you to choose the best forex broker, which in return will multiply your odds towards calculated positive returns on investments.