How to choose the right broker?

Photo: Google Image

Before choosing a broker, ask yourself these questions:

• Are you qualified to trade forex on a preliminary basis?
• Do you possess the determination and moral courage necessary to recognize and overcome emotional problems inherent in forex trading?
• Do you possess the drive and the intelligent focus necessary to concentrate all your energies on the one goal of success in whatever endeavor you take?

If you possess the drive, focus, and perseverance necessary for concluding any activity successfully, forex is your ground. Armed with the necessary knowledge, and almost immune to the tricks and lies of fraudsters through the information you read here, you will be ready to step to the next phase of your trading activity.

There are a large number of forex brokers in the retail forex market these days, each touting its services as the best in the entire market. It can be a daunting task to sort out between them seeking those that are best suited to your needs. Due to the vast diversity of options, it is not possible to speak of a broker who is perfect for all kinds of traders. Instead, you should carefully consider your own expectations from trading, and compare that with what is offered by the broker and choose the one that is best suited to your needs.

Here get to know the criteria in order of importance.

Security

What is the point of opening a forex account if the funds you deposit will be unsafe with the broker, or worse yet, will be stolen and misappropriated? What is the logic of studying analysis and currency fundamentals if the profits that you make are pilfered by shameless crooks, or squandered by irresponsible individuals who cannot even manage themselves decently?

Would you hand over $500 on the street to someone who you have never met before? What if they were to offer you their brokerage services in commodities and stocks? You probably wouldn’t, because you’d expect some kind of independent confirmation of this individual’s claims with respect to his capability and authorization as a certified broker. And the opposite course would be sheer folly, of course, since who doesn’t know the popularity of making a living from scamming people these days?

Strangely enough, when the “person” in the above paragraph is a website that offers to mediate currency trading, many people are a lot more trusting of the claims. The fine design of a website, the implementation of trading software, the costs of creating a customer support staff convince many beginners that a company that makes these investments into creating the infrastructure for such an enterprise is unlikely to be run by thieves, crooks, liars, and their various other kinds.

Unfortunately, this attitude is a complete mistake. Fraud is a constant feature of business life. Employees, employers, and even auditors are known to have taken part in cases of massive frauds at the highest level of the corporate ladder. Who doesn’t know of Bernie Ebbers, and Worldcom? Are there still those who are ignorant of the story of the auditing firm Arthur Andersen, and Enron?

Thus, the first necessity for your choice of the right broker, is the safe and reliable track record of the broker firm. On the other hand, it is clear that the retail trader possesses neither the tools, the time, nor the expertise for determining which of the brokers are reliable, and which are not. Fortunately, the regulatory authorities in this country and in other financial centres of the world do their best for screening and weeding out the unreliable ones among the many decent firms. The best course is to ensure that the broker you choose is a member of NFA, and is registered with CFTC in the US, and with other relevant authorities in other parts of the world.

Initial Deposit

Unavoidably, the second most important variable in the equation for comparing brokers is the initial deposit requirement. Many traders prefer to begin their careers by risking very small amounts which leads them to seek the broker offering the lowest initial deposit requirement naturally. This reasoning certainly has its merits; however, the initial deposit requirement should in fact be one of the last considerations in choosing the best broker for you, unless you really have a very small amount of capital that you want to risk for forex trading.

A serious broker offering excellent services may choose to keep the initial deposit requirement relatively high (around $500, for example) to ensure that the clients are serious about their trading practices. In addition, forex is usually so volatile that a less than the optimally capitalized account is highly likely to be wiped out during the ordinary fluctuations in the market.

It is self-evident that a beginning trader should only risk the amount that he can comfortably afford to lose. In that sense, the initial deposit requirement of the broker should never be more than what you can afford. On the other hand, beginning your career with a pittance like $10-50, and trading at 10:1 leverage cannot be considered a wise choice. Trading with such small sums is similar to trading in a demo account, and the emotional lessons gained will probably be of little value.

Spreads

Spreads are extremely important for forex traders, seasoned, or novice. Since the broker usually receives the compensation for its services by widening the bid-ask spread beyond the quoted values in the wholesale interbank market, a wide bid-ask spread represents a larger amount of money leaving your pockets and entering those of the broker’s. You pay this fee regardless of the profit or loss you make with your trade: so, there’s always good sense in ensuring that you choose the broker which offers one of the more competitive spreads in the market. Sometimes it may be advisable to open an account with a broker that charges slightly higher spreads in exchange for the safety offered by its long history and track record. But even in that case, a spread beyond three for the EUR/USD pair, for example, is not a very good idea.

Deposits and Withdrawals

It is not a good idea to trade forex if you cannot withdraw your earnings with ease. Conversely, the broker must facilitate your termination of the account in case that you’re not entirely satisfied with the services offered, regardless of the reasons. This should be non-negotiable: since the broker is only the custodian of your funds, there’s no justification for any unreasonable delays or excuses when you make the request to withdraw your funds. Similarly, you, as the client, should have no headaches at all when depositing funds with the broker.

Margin Requirement

Margin requirement and leverage ratios are among the most important aspects that must be considered during the choice of the broker. For the beginner, the lower the leverage the better. Since higher leverage is only advisable for traders with a proven track record of profits and success, the beginner should be uninterested in the maximum leverage offered by a broker. Instead, since he must be allowed to get used to leveraging on a step-by-step basis, the minimum leverage available is far more useful as a criterion.

For an experienced trader, evaluating the value of a high leverage option can be a bit more different. Since, by definition, successful traders use highly divergent techniques in their trades, there is no general rule for determining the optimal leverage ratio for a seasoned trader. However, for traders who plan to hold a position for the long term, 10-to-1 may well be the highest sensible value.

In short, beginners should choose brokers that offer the lowest minimum leverage option, and the greatest customizability. With such a setup, it is possible to increase leverage gradually, in tandem with our improving and developing skills.

Trading Platform

In online forex trading, almost all activity is conducted through the trading software. Indeed, for a safe trading experience, this is also a must: in order to ensure that the broker doesn’t tamper with your trades, and misquote currency prices to you, you should always seek those offers which allow the greatest automation, and reduce human interference to the lowest level possible. This is only possible with a successfully implemented trading platform.

Ask these questions to find a suitable trading platform:

• Does it offer a wide array of charting tools and technical indicators for evaluating the price action?
• What about financial news?
• Is the interface clean and uncluttered?
• Since you may spend a long time looking at the graphics and examining charts, is the appearance of the platform physically pleasing and relaxing?
• Are the servers of the broker reliable?
• Do you have connection problems in the middle of something important while using the demo account?
• How wide are the spreads during market volatility and news releases?
• Is slippage and misquoting a problem?
• Can you customize the platform to suit your trading needs and language requirements
• Does the platform receive frequent updates and bug fixes?

These are the most basic issues related to the trading platform. Needless to say, an advanced, easy-to-use, and uncomplicated trading platform can make the task of the beginner a lot easier. But even the seasoned traders will find that using a well-crafted, well-maintained forex software can greatly reduce the element of stress during trading.

Customer Service

Software is prone to generating errors. This has always been the case and will remain so for the foreseeable future. When there are problems with the trading software, or delays, or issues with deposits and withdrawals, you will need to seek the aid of customer service.

A friendly, patient, and helpful customer service can be a profit multiplier if used correctly. In those cases where the customer service is run by individuals with trading experience and an understanding of economics and analysis, you can even hasten the learning process by asking questions.

Account Types

Some brokers offer a large number of account packages. Others choose to offer one package with many customization options. In general, the number of account packages is not very important, provided that the broker offers a highly customizable main offer with adjustable leverage and margin requirements suitable to the needs of clients from different backgrounds and experience levels.

Currencies Offered

Finally, it is a good idea to choose a broker that offers the widest array of tradable currencies. In evaluating the currency pairs offered, you should try to make sure that different currency pairs of different classifications are available, instead of concentrating on just the number of the total offers. For example, if a broker offers three pairs of major economic powers, three pairs of emerging nations with floating currencies, three of fixed or pegged currencies, and three rare pairs (like the Saudi Riyal, or the Chinese Yuan), the offer is much better than that of a firm which offers 12 pairs all of which belong to major, developed economies.

Reprinted from Forexfraud, the copyright all reserved by the original author.