12 Tips for Choosing a Good Forex Broker
In the 70’s, the Forex market was created, and in the last 10 years it has experienced strong growth thanks to the internet and new technologies. There are studies that indicate that there are daily transactions in the Forex market worth 4 trillion dollars (the New York Stock Exchange moves 50 times less daily).
In addition, individual investors and traders have grown rapidly, thus making them one more participant, albeit very small compared to the Central, Commercial and Investment Banks. With this great growth in the Forex market have emerged new investment brokers with the aim of attracting retail investors.
Now,obviously in the US, your choice of brokers is extremely limited due to heavy regulation designed to protect traders. For our international audience, however, the options are more plentiful. Im not going to name specific companies for this is not some sort of sponsored post. With that important caveat, here goes.
1.Avoid welcoming gifts
Avoid all those brokers who offer welcome gifts, a welcome bonus, or Ipad type gifts. In most cases if you stop to read the fine print of the conditions, you realize that in order to withdraw the bonds or the money itself, you are more likely to end up losing all the money deposited. One fact to keep in mind is that if you want to withdraw your money and do not meet the conditions (almost always), the bonus received or amount of the gift made will be deducted from your account
2.A solid and respectable broker
Choose a broker with a lot of equity, because the greater the capital of the firm, the greater the protection of its funds. To determine the vitality of a broker, you should look at the number of employees it has. If it is a solid and respectable organization, it will have hundreds of employees, who can assist you 24 hours a day.
Likewise, they are likely to have hundreds of thousands of accounts. If the firm has few employees it is likely that they have small capital or they are unable to provide the personal assistance you need.
It should be noted that the broker is regulated by a competent entity such as NFA (United States), FSA (United Kingdom), or FINMA (Switzerland), among others. We must avoid all those brokers who are in tax havens. Brokers in Europe, Canada, Hong Kong and Australia have adequate regulations, and capital requirements are high. If your company is in a third world country, the current regulations may not be adequate.
Leverage can help you gain significant profits but can also cause huge losses. A broker is advised to provide leverage so that it can effectively operate in the foreign exchange market. Naturally, greater leverage means better opportunities for you. Some brokers offer a leverage of 100: 1, which means that for every dollar in your account, you can borrow and use up to $100. Other brokers offer up to 250: 1. When choosing a broker, you have to take into account the leverage offered, as this could be your ally to big wins.
It is advisable that the broker can offer different types of forex accounts. For example:
- “Mini” accounts require a minimum margin or equity that could be $ 250 and up. With this type of account, you can trade in forex but the level of leverage is lower.
- “Standard” accounts, which require a minimum of $ 2000. This type of Forex account allows you to open larger positions.
- The “Premium” account allows the opening of even greater positions.
6. Real-time information and good graphical tools
They facilitate the daily decision making, helping to choose the investment more optimally.
7.Have a free demo account
It is advisable that the Broker has a free demo that operates in real time because it allows you to practice and learn from real or fictitious money the features and services of the broker you want to contract before opening a real account.
8.Avoid so-called Sniper or Hunter Brokers
These brokers usually buy or sell based on pre-established points, usually perform these maneuvers to increase their profits. Avoid these types. To know who these brokers are, you must communicate and interact with other traders online or through forums.
One of the most important variables to consider when choosing a broker is the speed of executions. The best thing is that the execution is automatic, so when we want to enter or leave the market at a certain price, usually the broker respects it.
10.Do not pay commissions per Spot
Forex traders do not pay commissions for placing orders, unlike those that operate in futures markets. Actually, a Forex broker is a simple broker, not a broker or agent itself. So they get benefits through the Spread, this is the difference between the value of the “bid” and the “ask”.
11. Recall the differences between hiring a market maker and an ECN (Electronic Communication Network)
It should be remembered that: the price volatility in an ECN is usually greater than in the network of a market maker, ECNs usually do not allow leverage, unlike market makers. In addition, ECNs usually give the prices that their liquidity providers mark, with the same exact margins, and then charge a commission for each round turn operation. However, market makers can open an account with fewer resources and their platforms are easier to use.
Do not forget that the market maker or market maker covers the position with other operations or does not cover it, so it assumes the risk contrary to yours. That is, if you win the market maker loses, which creates a conflict of interest.