Trading Academy

Lesson 3

How to choose a broker?

Choosing a solid, reputable broker should be the primary concern of all investors.

Trading is hard enough in itself, but when a broker is implementing practices that work against the trader, making a profit becomes virtually impossible. So that confidence and trust in your broker is an absolute must, in order to be able to devote all your attention to analysis and actual trading. 

Requirements for a good forex broker: good trading functionality, execution, liquidity.

Key factors to understand when looking for a broker

  • Regulation & Safety of Funds

The regulatory status of your broker is one of the most important criteria for traders when choosing it.  The main objective of regulation is to ensure fair and ethical business behavior. All Forex Brokers have to operate in strict compliance with the rules and standards laid down by Forex regulators, otherwise their activity is regarded as unlawful.

Some of the more recognized Forex regulators are FCA (formerly the FSA) located in the United Kingdom, CySec out of Cyprus and the SEC and in the U.S.A.

Tip: The broker should be able to easily prove compliance with national and international regulatory authorities.  If a broker is regulated, the name of the Forex regulator should be transparently listed somewhere on the broker’s website.

  • Capitalization Level or Overall Size

Regulated brokers must comply with strict standards of capital adequacy requirements, meaning they should maintain liquid capital that exceeds the amount required to cover all deposits placed by clients. Holding your funds with a broker that has issues with capitalization can be very risky.

Tip: Check the capitalization of your broker by looking at the regulatory body websites.

  • Customer Service

Professional brokers will offer several different possibilities of contacting them including phone, e-mail, live chat, etc. Customer service is paramount for a good collaboration with your broker, and should be readily available 24 hours/day.

Tip: If you do not see a clear route to contacting someone at the brokerage on the website, this is already a red flag.

  • Some other things to consider when making your choice:

– Deposit and Withdrawal process (means, fees, segregated accounts)

– Number of currency pairs offered for trading

– Spreads should be competitive and consistent even during higher volatility

– Initial deposit requirements; important for traders who wish to invest small sums of money.

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