Not Every Broker is Good for Beginners, Here's Why

These days, you can find a long list of brokers in the market claiming to be the best. However, not all of them are actually good for beginners. How so?

Competition among online brokers is getting fiercer every day, which is a good thing because it lowers the cost and offers more services. However, this also means that more new firms are coming into town, hoping to attract users with their various promotions. Thus, it can be hard especially for new traders to find the one that fits them.

Choosing the right broker is a rather essential step in becoming a successful trader. If you have a good broker, your chance of success will be bigger. But still, the process is not that simple. You need to conduct thorough research about forex trading and consider a bunch of important factors.

Top 3 Beginner Mistakes

We have summarized some common mistakes that novice traders often make when choosing a broker to prevent you from falling into the same pits.

Common Misunderstandings

Beginners typically don't have much knowledge about forex trading yet, so they often just follow general instructions or online trading advice. However, without a good understanding, many things can be misinterpreted. For instance, most beginners would think that they should look for a broker that offers demo accounts, which can be used to practice their trading skills without having to worry about any real losses.

In reality, demo accounts can never offer the same results as live trading. There are many cases where traders make huge profits in a demo account, only to get a losing streak once they move to a live trading account. It mainly happens because there's a lack of emotions. Fear, greed, and hope play a huge part in one's trading performance, but most of the time, they simply don't exist when using pretend funds.

That being said, demo accounts certainly do offer a number of benefits because it gives new traders a general idea of how the company's software and the market work, but they can't fully imitate live trading conditions. Furthermore, most brokers have demo accounts anyway.

It's better to start with a cent live account and begin small. 1 cent lot is only worth 0.0001 lot USD, so it is very convenient. On top of that, there is no minimum deposit requirement, so you can put whatever amount you want in your account. After setting up your account, just practice your way through until you get consistent profit. Once you're more confident with your trades, you can then switch to a standard account.

Picking the Cheapest Option

Another common mistake that traders often make is choosing a broker based on the cheapest commission. These days, there are loads of discount brokerages that offer lower commissions compared to traditional brokers. This is surely attractive to many traders as they can save money instead of spending them on commissions and trading fees.

However, commission is not the only thing that matters when choosing a broker. In fact, you should be careful with discount brokerages as they can sometimes be unreliable. Therefore, apart from commissions, it's important to evaluate other aspects such as the broker's security measures, the quality of the customer service, the execution speed of the platform, etc.

Blindly Following Recommendations

Many brokers claim to offer the best products and services for any type of trader, but the truth is that not all of them are good for beginners. As a trader, it's important to know that there is no such thing as the "best" broker. As a matter of fact, you need to find the "most suitable" one for you. This means you need to understand your needs and preferences and use them to base your decision instead of just going with the most popular or the most recommended broker.

If you just blindly follow broker recommendations without actually looking them up and understanding what they offer, there's a chance that you'll stumble into the wrong broker. This doesn't necessarily mean that the broker is bad, but it's simply not suitable for you. For instance, some brokers offer a bunch of advanced trading tools, which are more suitable for expert traders who use complicated trading strategies. This type of broker also typically charges high maintenance fees, so they are certainly not beginner-friendly.

What to Look For in a Broker

Several studies show that about 95% of beginners will lose. If you're at the early stage of your trading career, then you should mainly focus on practicing and minimizing your loss. For this reason, beginners have a specific set of standards that are different from other traders. When choosing a broker, here are the criteria that you should look for:

The Broker's Safety

Choosing a safe broker should be prioritized by all traders, but even more so for beginners since they are not familiar with risks related to unregulated brokers. If you're a newbie, you can start by looking at the broker's address and contact number. Make sure that they can be contacted and the office really exists.

Then, check the broker's licenses. It's always recommended to choose regulated brokers as they are more reliable. Also, check the broker's compliances that are mostly related to marketing, KYC norms, bookkeeping, and more. Remember that you will entrust the broker to store your money, so you really need to choose a trusted broker.

Low Deposit and Trading Lot Requirements

As mentioned, starting small is the way to go for beginners. Risking a lot of money at the start of your career is definitely not wise as you can lose them all in a blink of an eye. Instead, you need to be patient and build your way up by doing a lot of practice. This is why choosing a broker that allows low deposit requirements is a great idea.

For beginners, it's recommended to only deposit $100 or less in the first 3 months and open positions as small as possible. You can choose to trade with a micro account that allows you to open positions as small as 0.01 lot or a cent account with a minimum lot size of only 0.0001 USD. Since you only trade with a small amount of money, you also don't need to worry about trading costs so much.

Easy-to-use Platform

Forex trading is already complicated by nature, so it's completely unnecessary to choose an advanced platform and make everything even more confusing. The best thing to do is to pick a simplified, easy-to-use platform with a clean interface. Just make sure that it has all the tools you need to get started and you're good to go.

Good Customer Service

The quality of the broker's customer service is very important for beginners. Before you register, you can "test" the broker by contacting the support and see if they are responsive. If they take a long time to reply or if their answer is not satisfying enough, then you might want to reconsider choosing the broker. This is important because they're the ones that are going to help you when you face issues. So, you need to ensure that they're easy to reach and helpful.

Good Educational and Training Materials

Last but not least, it's important for beginners to search for brokers that provide good learning sources. This can come in various forms, such as trading articles, quizzes, and online webinars. Some brokers even provide weekly or monthly training courses to help beginners improve their trading skills. They might charge an extra fee for this, but it's all worth it in the long term.

Trading is not a paint-by-numbers type of investment, so there is no one true way to guarantee your success. Instead, you need to forge your own path and discover a trading system that works for you in order to generate considerable profit. This is why getting a proper education is very useful, especially for beginners. Even as an experienced trader, you still need to continuously learn and keep upgrading your skills.

Final Words

Choosing a broker is certainly not an easy task. Nowadays, there are loads of options to choose from, but keep in mind that not all brokers are suitable for beginners. Since you're just starting your trading journey, you need to first learn about how the market works and decide what kind of broker you want to work with.

You can narrow down the options by using the factors listed above as a checklist. It would also be helpful if you were able to identify the signs of brokers that you need to avoid. But most importantly, you should get to know the broker before registering. Do thorough research, consider the pros and cons, and don't forget to check the broker's track record.