Choosing a good broker is very important for forex traders. Usually, new traders do not compare brokers before they choose where to trade. They try to choose broker that is just most well-known.
Choosing broker is similar to buying a furniture. Just because the furniture has good outer looks, does not mean that they are made firmly inside. And if you choose a brand that is just well known, you will have to pay a lot of money and sometimes does not worth the money. Therefore, it is wise to choose a broker that is affordable, is firm inside and has also has good design.
There are few factors you should keep in mind when choosing a broker.
First, the regulation. Regulation shows how firm and safe the broker is. There are a lot of scam brokers out in the market, haunting for your money. There are few well known regulations such as FCA, ASIC, NFA and CFTC etc. These regulation protects you from scam, but you should keep in mind that the broker should have regulation of your nationality. For example, if you are trading at a broker that has FCA regulation, and suddenly the broker got bankrupt. You would think that you will get your money back because they have FCA regulation, but if your nationality is USA, you will not be able to get your money back, because the FCA regulation is just limited for traders with UK nationality. You should check out if the broker you are using has regulation of your nationality.
Second, Leverage. leverage is something like borrowed capital to increase potential profit for you. Does this help trader to earn more money? The answer is both yes, and no. Leverage is a double-edged sword. It allows you to trade much more volume with smaller amount of money, but it also drives you down to stop-loss really fast. There are some brokers that provides leverage of 1000:1, even 2000:1, be aware of them. Never use leverage that high. Usually regulated brokers never provides leverage this high. Trading safe is much more important than making more profit. I recommend to use brokers with leverage below 500:1 and trade small volume. Play long game. Never grow your volume because you think you are not earning much.
Lastly, Spread and commission. Spread is the difference between buy rate and sell rate. Brokers actually makes money with this. Therefore, it is better for you to choose brokers with low spread. Let me give you an example. You have 2 brokers, A with spread of 1 pip, and B with 2 pips. When you traded 1 transaction, you will pay broker A with $10 and broker B by $20 as spread/commission. For 30 transactions, you will pay broker A with $300 and broker B by $600 as spread/commission. Last, for 100 transactions, you will be funded by broker A with $1000 and broker B by $2000 as spread/commission. If you have chosen broker with higher spread, you have paid commission of over $1000 difference. That’s why you should choose broker with lower spread.
That is quite informative statement, one should understand that how to choose right broker as per regulation and strategy of a particular.
Good piece!
Newbie traders really need better tools to help them decide which broker to use
Popular Forex forums & review sites are very much useful!
What’s the better tool? Do you have any suggestion?
Choosing best broker is one of the basic steps and plays a vital role for all those who want to start the Forex Trading journey. Every trader has to know about the broker’s regulatory body either it is a registered broker or not, Offered market, Trading platforms and tools, commission, spread and most important excellent customer support service. Never forget to look over trading terms and conditions before sign up.
I don’t trust the review sites, many of them are just trying to sell ads to brokers.
So much wrong in this post its hard to know where to begin.
Mr William, if that’s your real name, please check your facts before you “advise” others
which part did I post wrong info? please correct me
True; but top forums & review sites are different, for example: FPA (Review Site).
I’m not a fan of FPA - to me is just a way of selling ads for brokers
should choose the broker which is more appropriate to the concept of trading that will be used , if love doling scalping should choose the broker which allows trading concept such as this.
good broker always ensures good environment for using any kind of trading strategies with no restrictions.
True. I’d also say that a good broker is properly regulated by a reliable state agency.
Good brokers can only understand in relative terms. Of course, license is important. But, many brokers also need to be tested. Personally, I think www.icmarkets.com are ok and they have limitations, not none.
I value some brokers in my own opinion: In search of the Best Broker to start Forex trade
they allows any kinds of trading strategies with hedging ?
Regardless of the broker it depends on what county you’re in. Canada allows hedging, US does not.