For beginners, there is a set of criteria to look for when looking for a good broker. Here is the simple guide to recognize a reliable forex broker.
Before you trade, you need to choose a broker and open a trading account. A forex broker is a company that facilitates online trading in exchange for some profit from the difference between the bid and ask prices (forex spread). However, there are currently hundreds of forex brokers in the world, so you need to be careful when choosing one in order to avoid scams and other malicious actions.
So, how to choose a good broker? The easiest answer would be to ask for recommendations from friends who are more experienced in forex trading. But if you don't have one, there is no need to worry. In this article, we will reveal the key aspects that you need to consider when choosing a broker.
1. Clear Identity
A good broker must have a good track record, starting from when it was established, what company it belongs to, to where the office is located. Usually, a reliable broker would offer a complete set of communication means, including live chat, email, phone calls, and an official address to visit. In contrast, you need to be aware when you come across a broker that only has a P.O BOX or a fake address.
See Also: How to Identify Fake Broker Reviews
2. Regulation Status
It is well proven that regulated brokers are mostly more reliable than unregulated ones. Regulated brokers refer to brokers that have obtained a license from at least one financial regulator of a certain jurisdiction. This means, the broker is subject to the area's regulation and must comply with the rules set by the authority, reducing the possibility for them to conduct some scheming that compromises their clients' safety.
Each country has a specific set of rules that must be obeyed. For instance, in the United States, forex brokers must register at the Futures Commission Merchant (FCM), the Commodity Futures Trading Commission (CFTC), and must be a member of the National Futures Association (NFA). In the UK, forex brokers are required to be licensed by the Financial Service Authority (FSA). In Cyprus, forex brokers must be regulated by the CySEC, etc.
See Also: Comparing CySEC Vs FCA Regulation
Usually, a broker would display its regulatory status on its official website. However, it isn't exactly uncommon to find brokers that claim to be regulated in a certain country even though that's not true. This is why you need to do thorough research and check the validity of the statement by visiting the regulator's website.
There's nothing wrong with choosing to use an unregulated broker because being unregulated doesn't always translate to scams. However, it is best to avoid shady forex brokers who are clearly lying regarding their regulatory status because obviously, that's not a sign of a trustworthy service.
3. Good Customer Support
A good forex broker must be able to provide customer support at least five days a week. It's even better if the broker provides variable methods to communicate with their support teams including email, phone call, fax, live chat, and so on. Live chat in particular can be extremely helpful when we need quick assistance to overcome technical issues when trading.
The quality of customer support can differ from one broker to another, so make sure to test it out before registering. One of the things you could try is to make a list of questions about their service and ask them through one of the available channels. You can then judge how responsive and insightful they are based on their answers.
You might argue that it's expected for pre-sale services to be good and that it doesn't guarantee that the post-sale service will be just as satisfying. However, if you find that a broker has bad customer support even during the pre-sale period, then there is little to no chance that it will get better once you become a customer.
4. Supportive Features
Once you check the previous aspects, it is time to see the actual trading service and facilities that the broker offers. Generally, traders would prefer a broker that provides the following things:
- Low spread – the closer it is to 0 (zero), the better.
- Leverage – starting from 1:100 leverage. Extremely high leverage can be dangerous for traders because of its high risk, while lower leverage might limit your opportunity.
- Trading platform – the most common trading platform for forex traders is MetaTrader. However, some brokers might provide different platforms in their service. This is fine as long as it operates smoothly, is able to execute orders quickly, is easy to navigate, and has complete technical analysis tools.
- Demo account – it's a free account that can be used to test the broker's platform without having to deposit any real money.
- Withdrawal methods – ranging from the most traditional like bank wire to e-payments like PayPal, Skrill, and Neteller.
The aspects we mentioned above are the basic criteria of a good broker in general, but keep in mind that every forex trader has their own unique needs. Therefore, when choosing a broker, you also need to pay attention to the features that they offer. If they can't provide what you need in terms of your trading system, move on and find another one. To make your job easier, we have compiled a list of forex brokers for all kinds of traders, so make sure to check that out.