How to choose a good forex broker (Part 1)
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Choosin
g one of the best / top forex broker should be the first step in your trading journey.
The importance of trading with a good forex broker cannot be overemphasized. The brokerage company keeps your money, connects you to the market, records your transactions, and would pay you when you want to withdraw profit.
So, no matter how profitable your trading strategy may be, if your broker is dubious, you aren’t going to get anything from your trading.
Unfortunately, many forex brokers out there are unregulated and outright fraudulent.
So, how can I find a top / best forex broker?
In recent years the sprouting of new brokers has decreased. But still, cases of brokers closing shop abruptly and running off with clients' money are still heard.
Registering with a broker means putting your money on the line as well as trusting they will secure your crucial personal data such as credit card numbers or bank account details.
Since these are very vital things, trusting the wrong broker means you're jeopardizing your security.
There are multiple factors to consider when selecting a good broker
Regulation
Most of the major economies in the world have regulatory agencies that supervise the activities of forex brokers under their jurisdiction. In the United States, the Commodity Futures Trading Commission (CFTC) is the regulatory agency responsible for the activities of forex brokers.
Similarly, there is the Financial Conduct Authority (FCA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Investment Information Regulatory Organization of Canada (IIROC) in Canada.
Having a broker with top regulation bodies such as ASIC and FCA is important. Always check the regulatory body in your country and confirm the broker you intend to trade with is registered.
This way, should there be any problems, you know your money is secured (as good as it can be).
Broker geographical location
It is a well-known fact that the majority of fraudulent brokers operate from those small island countries in the Caribbean, away from the major forex regulatory agencies in the world.
Furthermore, if you’re a US citizen, it is against the law to open a trading account with a foreign broker. You can legally trade with a US-based forex broker only.
Market maker vs ECN
It is very important to know the type of service the broker offers. Some brokers are market markers. That mean, they absorb all orders from their clients by taking the opposite trade.
For this type of broker, there will always be a conflict of interest, leading to tricks like widening spread to hunt your stop loss. You’re better off with an ECN broker who routes your orders directly to the market.
Customer Service
Almost every trader at some point needs help from the broker. A broker with great customer service means you can always count on them to help you instead of the annoying auto attendants.
Most will reply after a few hours or minutes depending on how busy they are.
Also, check the ease of contacting them. Email, live chat or call should be available options but it may vary.
Trading platform
Confirm that the broker you select has a variety of trading platforms compatible with your personal interests.
Popular platforms are MetaTrader 4, MetaTrader 5 and cTrader can be provided by the broker. These three platforms allow automated trading.
Trading instruments
All brokers offer the most popular pairs such as EURUSD, USDJPY and GBPUSD. Beyond these, brokers can provide as many as 80+ other pairs to trade.
Some offer a few indexes and cryptos too. If you like to trade a few other instruments, always check if your broker offers them.
Reputation
Being regulated isn't the only way to mark a broker good or bad. Some regulated brokers also do unscrupulous behavior. Search for the broker online and read people's reviews.
Admittedly, you'll find some biased opinions along the way like how the broker is bad. Or even how good it is. Do your due diligence and investigate more.
Most traders when they lose take it online to trash the broker without admitting they are at fault. Also, if the reviewer is partnered with the broker, they may shower positivity which isn't deserved.
Terms & Conditions
Before you deposit money with your chosen broker, make sure you read their Terms & Conditions. There, you will find information about how to open a live account, the paperwork involved, deposit and withdrawal policies, and hidden charges.
For any clause you don’t understand, call the customer service to clarify with them. If all seem good after doing this, proceed with the next step.
Segregated Bank Accounts
A segregated bank account means that the traders’ funds are kept separate from the company’s account.
The significance of this is that the traders’ funds are not used by the forex brokers in running the day to day operations of the company.
Choose a forex broker that has put in place measures to safeguard the funds of its traders.
Read more in our article: How to choose a good forex broker (Part 2)
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How to choose a good forex broker (Part 2)
Choosing a good broker isn't easy. The following article can help you finding one of the best and top forex broker
How to choose a good forex broker (Part 1)
Choosing a good broker isn't easy. The following article can help you finding one of the best and top forex broker
Want to start trading on a live or demo account?
Be aware that most retail traders (usually around 60-80%) lose money. Please consider whether you can afford to take the risk of losing your money.
