The international currency market, like forbidden fruit, continues to attract both institutional investors and individual traders. The number of traders willing to join the army and the volume of operations on the currency market is growing like weeds. Neither the fall of volatility in Forex to historic lows, nor the growth of bonds volume with negative profitability to nearly $17 trillion, nor the terrifying stories that more than 90% of novice traders are losing money… Nothing stops them. According to Bank for International Settlements research, in April 2019, the scale of daily trading in the foreign exchange market rose to a new historic high of $6.6 trillion, almost 30% more than in 2016 when it came to $5.1 trillion.
For anyone eager to start trading number one thing to do is to choose the broker. needless to say, that it is an extremely challenging task, at the same time it is the most important one.
So, in today's article, we would like to consider in detail the characteristics you should take into account while looking for a reliable broker.
As practice has shown, the majority of brokerage companies got their hands dirty, or unscrupulously fulfilled their part of the public offer agreement. Naturally, novice traders have many questions, for example, best forex broker for beginners? What is the leverage to choose? What to pay attention to first of all? Let`s try to find the answers to these questions.
What is a Forex broker?
So, Forex broker is an entity that operates as an intermediary between a trader and the currency market. According to the law, a single person cannot directly enter into buying and selling transactions on the currency exchange. All trading operations must be carried out directly through a Forex broker or, as it is also named, a dealing center, whose activities are carried out under licenses and regulated by different government agencies and public organizations. To start trading, it is necessary to register on the broker's website, open an account and deposit it with a plastic card or an electronic wallet. Access to the currency market is provided through the trading terminal, which can be downloaded from the website. Forex brokers use various platforms, but MetaTrader 4 is considered the most popular one. With its help, you will be able to make trading operations, refine your strategies, carry out graphical analysis, use technical indicators and automated trading systems in trading.
Now here are the aspects determining the reliability of a brokerage company.
The wider the list of broker licenses in different countries, the more reliable the company looks - on the one hand; on the other hand - it is not necessarily so, for example, with the European subdivision of the broker, when working with its offshore jurisdiction conditions for clients can often be much more profitable, and the list of offered services is wider.
Availability of Segregated Accounts
Basically, it means storing clients' funds by the broker not together with its funds, but on separate accounts in banks, with which the company concludes certain contracts. Accordingly, in this case, each transaction is documented with the bank, which provides the client with guarantees against possible fraudulent actions on the part of brokers and implies the appropriate level of security.
Period of Operation
Brokerage companies, that are created just to make money from traders, usually disappear in an unknown direction within a year or two. They cannot withstand economic crises and sharp currency fluctuations. Do not open an account with a broker, who lures traders with generous gifts, but entered the market a few months ago. Pay attention to companies that have been in the market for more than five years.
The Company's Website
If you do not know how to choose a broker, go to the official website of the company and talk to support representatives. What you can find out:
How does the website of a reliable Forex broker look like?
It has all the information a trader needs and it is easy to find. There is a maximum number of communication methods for clients. Additional advantages are the availability of a blog, analytical forecasts, and educational articles.
Keep in mind that reviews on the Internet should not be unconditionally believed. Most of them are ordered by competitors to vilify a neighbor, or written by representatives of this very company to justify themselves.
Pay attention that you do not need to look for feedback from real customers on the company`s forum and sites with broker ratings. Look for traders on independent platforms and social networks. Address personally - in your correspondence you will learn many more details and will understand if you should trust the company with your money.
Account Types
The type of trading accounts that are provided by a forex broker depends on the primary focus of the broker. If the main focus of the broker is the small retail trader, the broker will most likely provide their clients with the facility to trade in lots smaller than the standard lot size of 100,000 units of currency. These types of trading account are called Micro and Mini accounts.
The difference between a micro and a mini account is the lot size, 1,000 units for the micro account and 10,000 units for the mini account. Both these types of trading accounts are known as “beginner friendly” since they have a low minimum capital requirement.
For some brokerage companies, they do not distinguish between the different types of clients that they have. This sort of broker usually offers only one standard type of trading account to provide to all their clients notwithstanding the amount deposited.
The third type of trading account that is proposed by some brokers is the VIP trading account. VIP trading accounts are adjusted towards high net worth clients that require more from their brokerage companies. Normally, this type of trading account comes with perks such as an assigned account manager and fund management facility.
Commissions and spread
Trading costs represent a huge determinate factor of a trader’s ability to make a profit when trading forex. The higher the cost of trading, the more prices have to move in the trader’s favor before he can make a profit from his trade. Hence, it is crucial that you pay close attention to the commissions and spreads that a broker will levy on your trade.
It`s well-known that brokers make money by charging traders a spread. The spread is the difference between the buying price and the selling price. For example, if the Bid & Ask price for the GBP/CHF currency pair is 1.2594/1.2605, it means the spread is 11 pips (1.2605 - 1.2594 = 0.0011).
Every broker's website should contain detailed information on commissions and spreads, as a rule, it can be found in the section "Trading conditions".
Spread can be either fixed or not fixed. If the spread is fixed, its value does not change, regardless of market conditions, and the broker undertakes the costs of executing trades. As a result, fixed spreads are often larger than non-fixed spreads. Non-fixed spreads can both increase and decrease in the market with increased volatility.
Compare forex brokers from your list and carefully study and estimate their commissions and spread. However, remember that excessively low commissions and spreads do not always mean that it is a reliable broker, but rather, on the contrary, they want to attract traders with low commissions. In this case, the quality of service and reliability of the company itself may be worse than you expect. Spread and commissions should be approximately equal, their difference may be related to the partner banks and liquidity providers of the broker, as they all may be different.
Advisors
The availability of diverse Expert Advisors is also crucial. We recommend you to pick a company that provides its clients with various analytics, trading signals and all sorts of hints in trading. You can always use them, if necessary. They are especially helpful for novice traders who are just moving on to trading on real accounts. The lack of such service indicates that the broker does not care about the fate of its clients and how clients will trade, though the broker's main earnings are commissions and spread from clients' trading
Leverage
One more important criterion for choosing a broker is the leverage that the broker provides to clients. The leverage allows you to trade a volume that can significantly exceed your initial starting capital. It is the leverage that has made Internet trading so popular today.
Judge for yourself, with the help of leverage, you can enter the market even with the amount of 100 dollars. Agree - it's not so much to find out your level and check the execution speed. With a larger investment amount, having leverage will allow you to use different trading tactics and open a lot of positions, which will increase your chances of making a profit.
Usually leverage level varies from 30 to 1000. Make sure you have what to choose from based on your financial goals and risk appetite.
Minimum deposit
Often brokers set minimum amounts for a client to open an account. Evaluate your investment opportunities yourself: you cannot trade your last funds on the stock market, because it involves risks. You can start with 500-1000 dollars, increasing the account as you accumulate experience. Many successful investors started with exactly such minimum amounts. All brokers offer leverage so you can use several times more money than they have on the account. With this in mind, even the minimum amounts can bring a decent income.
Trading Platforms offered
This is another essential criterion you should pay attention to. Almost all brokers offer their clients to trade via three platforms: downloadable terminals such as the MT4 platform, CTrader platform, and Trading Station. Nevertheless, depending on which platform the broker has decided to provide its services, there could be some key characteristics unique to the platform. For example, the MT4 platform allows traders to employ in social trading using EAs (Expert Advisors). Others also allow traders to install custom indicators to sharpen their trading process.
Education
This is another essential criterion you should pay attention to. Almost all brokers offer their clients to trade via three platforms: downloadable terminals such as the MT4 platform, CTrader platform, and Trading Station. Nevertheless, depending on which platform the broker has decided to provide its services, there could be some key characteristics unique to the platform. For example, the MT4 platform allows traders to employ in social trading using EAs (Expert Advisors). Others also allow traders to install custom indicators to sharpen their trading process.
Compulsive marketing.
Mostly top brokers do not "call" clients with the offer of services. Usually, a manager will call 1 time after registration to clarify whether any help is needed or not. Also, you may get a call at the first withdrawal of funds to see if it is you make a withdrawal. Managers will not call you imposing any services.
"Average" or outsiders can often call periodically with any promotions, offers to enter the market on the expected news, etc., "processing" to ensure that the client funded his account. We do not recommend to work with such companies, especially taking into account the fact that the choice of professional brokers is sufficient.
Customer Service
The last thing that most traders have in their minds when estimating a forex broker is customer care. The fact is, for any online-based service industry, it signifies the rope that connects the trader to the broker.
Hence, it is necessary to look for a broker that has provided traders with various ways of interacting with the support team. Also, the support hours must be long enough to cover the trading hours and not be defined by office hours since the forex market is a 24 hours market. Another feature to consider when assessing a broker’s customer care service is whether the support service is accessible in various languages or just one language.
Demo account availability
While choosing the broker to work with, pay attention if there is a demo account offered. You can not only test the capabilities of the platform and how convenient it is for you but also understand for yourself whether you are interested in the profession of a trader, whether you will be able to work through the terminal.
A demo account is an additional tool and a professional market player. It is an excellent option for estimating and testing new trading systems, a platform for finding and adjusting your strategy.
By opening a demo account with a broker, you get the following opportunities:
Getting to know your broker;
Testing the terminal, its options, and functions;
Familiarizing yourself with the market, the process of placing trades;
Trading on the market, with no investment or risk of your capital;
Testing your strategy on the virtual market, which is no different from the demo mode;
Gaining the experience, you will need when switching to a real account.
Withdrawal
In addition to all aforementioned, let`s talk about such an important thing as withdrawal. Information on what types of withdrawal and deposits are supported by the trader's cabinet, as well as on the terms of these procedures should be reflected on the broker's website.
Check on the website or contact support team to find out what are the payment methods available and how you can withdraw. Make sure you do it before depositing so you know that the options offered are suitable for you.
Additional Services
Apart from all the above-mentioned factors, check out if the broker that you are estimating is offering extra enhanced services. Additional services such as VPS, social trading, free market analysis, and trading signals are all progressive services that can help shift the balance in a broker’s favor over other brokers in the business.
Except for all the technical moments, one more important point in choosing a broker is your comfort: how much you like a financial advisor, whether the procedure of opening an account is complicated, how quickly problems are solved, where the office is located. Besides, a great advantage of some brokerage companies is the availability of analytical support for clients, which gives specific recommendations, advice and offers real trading ideas. Often, of course, you feel the comfort to the full extent only when you start to work with a broker, but on different signs, you can get an idea about the future service even at the stage of the first contact with the company. Turn on your intuition!
Obviously, finding the best forex broker will be pretty frustrating and complicated, especially taking into consideration all the aspects we`ve mentioned above. But it's better to devote some of your precious time searching at the very beginning and entrust your money to a reliable company than fall into the wrong hands and lose your funds.
So be patient and choose wisely.
