Beginners guide – Choose the perfect Forex broker

Introduction

In the past, only the large banks, institutions, hedge funds used to trade in the Forex market. But things have changed a lot. The recent advancement in technology has changed the concept of paper-based trading. Retail traders can easily execute the trades in the global market with the help of a broker.

Read on to find out what Forex Brokers are, how they work and how to choose the best Forex Broker (for your needs).

Key Takeaways

  • Learn the basic knowledge on Forex Broker. What to check for when looking for a new (or your first) Forex Broker
  • Find out the key steps to finding a reliable broker
  • How to test the Forex broker and validate your choice

Introduction

In the past, only the large banks, institutions, hedge funds used to trade the Forex market. But things have changed a lot. The recent advancement in technology has changed the concept of paper-based trading. Retail traders can easily execute the trades in the global market with the help of a broker.

Forex is the largest financial market in the world. Every day more than $5 trillion is traded all over the world. Due to the massive volume of trading, it becomes impossible for the big players to manipulate the market. The mighty President of the United States of America doesn’t have the power to rig this market. Being free from external manipulation and rigging, Forex trading has become the haven for skilled investors.

So, what are Forex Brokers?

In simple terms, brokers are the middleman. But in this case, the broker is not a person rather it’s a company offering retail trading service. Forex brokers offer advanced software also known as “Trading Platform” to retail traders. Retail traders can buy or sell any currency pairs just by clicking the “BUY or SELL” button in their terminal. Most importantly, the Forex Brokers’ platforms are equipped with modern analytical tools.

The analytical tools are used to determine the direction of the price movement of a certain trading instrument. For instance, you can use the trend line or the Fibonacci tool in your brokers trading platform and find the sweet spot to execute the long trade in the EURUSD pair. The broker ensures the perfect online trading environment for the retail traders so that they can trade the Forex market 24 hours a day, 5 days a week.

Some of you might be wondering that you have discovered the “Ultimate Holy Grail” to secure your financial freedom. It’s just a matter of time, you get the trading account from a broker and start taking the trades in the real market. But things are not so easy. You need to find a well-reputed broker to ensure a premium trading environment.

Failing to trade with a well-regulated broker can result in big losses. You need to be extremely careful with the broker selection process as your success greatly depends on your trading environment. In this article, we are going to teach you an amazing technique that will allow you to find the perfect Forex broker. Let’s dive into the details.

Regulations

The first factor to consider while selecting the broker is “Regulations”. It’s more like a license that gives clearance to the brokerage companies to offer their trading service. Premium brokers usually have multiple regulations from reliable regulators.

For your better understanding, we have listed some regulatory bodies below.

  • Financial Conduct Authority (FCA)
  • Commodities Futures Trading Commission (CFTC)
  • The Australian Securities and Investments Commission (ASIC)
  • The Financial Services Agency (FSA)
  • The Investment Industry Regulatory Organization of Canada (IIROC)
  • Cayman Islands Monetary Authority (CIMA)
  • The Monetary Authority of Singapore (MAS)
  • The Securities and Futures Commission (SFC)

Getting a license from the regulatory authorities is a very complex process. The broker needs to maintain a certain standard in their offered service to get the license. And this standard tends to differ in different regulatory authorities. Usually, the premium Forex broker gets the licensing paperwork done from multiple regulatory authorities. And to do that, they have to maintain strict sets of rules which ultimately favor the traders.

So, try to find a broker who has to get their clearance to offer service from multiple regulatory authorities. Never get fooled by the professional look of a broker website. Spend some time researching in order to find a well-regulated broker.

Some quick recommendations are:

Are you interested in finding out which are the best-rated forex brokers? Click the link and read our detailed report of the Best Forex Brokers in 2021

But there is a small twist when you select the broker based on the regulations only. Getting regulations from the regulatory authorities requires intensive paperwork and the process can be really long. So, there is no need to think that regulations are the only key factor that defines a great broker. Thousands of retail traders are trading with unregulated brokers for years and they are extremely satisfied with their offered service.

Account Specifications

The trading account provided by the broker greatly varies. The same broker can offer different types of trading accounts with different facilities. Usually, the rookie traders start trading with the broker offering insane leverage. But leverage is more like a double edge sword and a good broker is never going to provide insane leverage. That’s why the professional brokers always offer optimum leverage so that the retail traders don’t have to lose a big sum of money due to an aggressive trading approach.

Before you open the trading account, make sure you analyze important details like margin, leverage, trade execution speed, etc. You must feel comfortable with the trading account specification or else it is better to look for a different broker. For instance, some brokers do not allow retail traders to hedge their position. So, if you use a grid trading system, you will never like to trade with them. Be very careful about your account specification as it can greatly affect your trading performance.

Cost of trading

Brokers make their money in the form of commission and spread. When a trader opens a trade, the broker charges a small fee, known as commission. The commission for each trading asset is different and directly related to your lot size. Secondly, they also earn money from the spread. The difference between the Bid and Ask price is known as the spread. So, if the spread is higher, you have to pay higher fees in each trade and thus the cost of trading will be higher.

As a full-time trader, you must be careful about the associated cost of trading. A good broker should offer a tight spread trading environment and the commission will be really low. And if you want to deal with carrying trade, make sure you see the rollover charge for different trading instruments.

So, try to find a broker who is willing to offer an amazing trading environment without imposing heavy fees and commissions. Keep your trading cost low without compromising the quality of a broker.

Trading environment

The trading environment is one of the most important elements for choosing a great broker. The high-end brokers are spending thousands of dollars just to provide premium trading platforms. On the contrary, the average brokers provide the basic proprietary platform. And by doing the market analysis with the basic tool is a very hectic task.

So, how do we test our trading platform?

To test the trading platform, we need to use the demo account offered by the broker. The trade execution needs to be fast and every order should be carried out with zero slippage. However, if you trade during the news, the platform might register very small slippage and it is very normal.

Test the trading platform in the demo account and make yourself comfortable. After using the platform for 2 weeks, if you feel that the platform is not up to the standard, you should not open any trading account with the broker.

List of trading instrument

A premium broker always offers multiple trading instruments. They always try to add more assets to their list so that their clients have a wide range of assets. Some of the brokers often offer a wide range of assets like –

  • Currencies
  • Commodities
  • Cryptocurrencies
  • Stocks
  • ETFs
  • Bonds

Before you start to deal with the diversified asset, make sure you learn about the associated costs. Different brokers tend to offer different pricing policies. So, always see the spread, commission, rollover charge before you select a specific broker.

Deposit and withdrawal factor

The deposit and withdrawal factor in the broker must be a hassle-free process. Before you invest your money, you need to read some public reviews. Go through the terms and conditions of the broker and make sure that they are not imposing heavy sets of rules in withdrawing the profit. A premium broker always ensures hassle-free transactions for the retail traders so that they can trade with great ease.

One of the easiest ways to find a reliable broker-based deposit and withdrawal factor is the payment gateway. Reliable brokers tend to work with the banks and trusted payment service providers only and they tend to process payments in USD, EURO, CHF, GBP etc. But when it comes to an e-wallet or digital currency, you need to be extremely careful while making a big deposit as some brokers have limitations on the maximum amount of deposit.

Safety of your funds

Being a full-time investor, you might have to trade with big capital. In such a case, you need to be 100% sure that your funds are safe in the broker’s hand. A professional broker will always give free access to your investment and you should not have any problem with the deposit or withdrawal process. Since every regulated broker is subject to “Net Capital Rule”, your funds are most likely to be safe as long as you trade with well regulated and trusted brokers.

Customer service

Checking the quality of the customer service is very important while selecting the broker. But be aware, some of the low-end brokers often hire a skilled customer service team so that they can professionally manage new clients. So, you need to check the customer service depart once the broker fulfills the mentioned condition.

A high-end broker should have the ability to deal with critical problems in a fast-paced manner. Chat with the customer support team and evaluate their behavior in terms of knowledge, skills, and professionalism. If you feel satisfied with their offered service, you can expect professional service from the broker in the long run. Open a real trading account and evaluate their performance by investing small. Withdraw some profit and if you feel satisfied, start your trading career with the broker.

Summary

Always remember to follow the tips mentioned in this article while selecting the broker. Some steps might seem tough as you don’t have the basic knowledge. So, develop basic knowledge about this market and stick to the guidelines and you can easily select the premium Forex broker without having any trouble.

Sources

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