There are two most common ways of choosinf a forex broker There are two most common ways of choosing a Forex broker: 1) Simplified or "lazy way" — which is to read broker reviews, and
based on stars and feedback make a choice. There will be no guarantee,
however, that a 5 star rated broker will be the best choice for your
trading needs, or that the reviews you've read were actually genuine
(unfortunately, that's the reality of online reviews submission). 2) Professional way — which is to do your own research while making
reading reviews a part of that research.We're going to describe
the steps of making a professional choice: Step 1: 1: Know what You
want from trading Start by creating your very own List of broker features needed. Choosing your first (or next) Forex broker can be much easier when you sit
down and make a Wish list of services and features desired for trading.
Questions to add to your List: - what currency pairs are you going to trade? - what spreads would
suit you (fixed, variable, how many pips)? - do you accept paying a
commission for trading Forex? - what would be your minimum investment
(account size)? - what leverage do you need? - what tools,
indicators do you need for trading? - do you need a specific trading
platform (like MT4)? - do you want to scalp? - do you want to
hedge? - do you need a trailing stop? - do you need
"one-click-trading" execution feature? - do you wish to have mobile
phone trading feature and/or trading alerts? - do you care whether it
is going to be a ECN/ STP or a Dealing Desk broker? - How much or how little leverage will a broker
give you? - Is this broker registered with any regulating
authorities? - Does this broker over premium services such
as charting, news feeds, and market commentary? How important
are premium services to my trading?
- do you care about
reputation of a Forex broker? (You must actually care, for the safety of
your investment). - which way (wire transfer, Paypal, credit card etc.)
can you transfer and receive funds? There could be restrictions depending
on the country you live in. - how much would it cost you in fees to pay
for funding, transferring, withdrawing your money? - Sort those questions by the level of importance to You, add your own
and begin the Search. Step 2: Do the
search for matching brokers Scan the network, use search engines and visit
every broker website. That's what traders did in the past! Step 3: Pay a visit to
broker's website After narrowing down your choice to few Forex brokers, it is time to
make a further research by visiting brokers' websites and reading about
their Forex trading rules, Agreements and policies, understanding the terms and
conditions; getting a feel of the transparency of the business they do:
availability of addresses and phones, customer support services, presence
of the information of regulatory institutions they are supervised by.
If a broker doesn't have any physical address listed on the website on
the Contact page (or anywhere else, where it'll be visible to visitors) it
should sound an alarm in your head. Phones, chats, skypes, emails - all
that doesn't count if there is no address! Secondly, the overall appearance of the website can tell about its
owners. It doesn't have to be all modern and interactive, written on Flash
etc, but it should have a professional look and all pages and links must
be functional. Something like "Coming soon" on an empty page is not
acceptable! To a new visitor, it always looks like this is a temporary
message, but from our experience we already know - it is going to be
"Coming soon" for months and years(!). A Forex broker who has opened a
business and is accepting money from clients cannot allow a website to
function partially! Your best choice would always be to open an
account with a Regulated broker — a broker which is registered with
appropriate authorities and remains under their supervision and
regulation. - United States: NFA, CFTC , Forex
Regulation in the US
The regulatory bodies in the United States are the CFTC
and the NFA. The
CFTC determines the rules regulating the commodity
brokerage industry, and its
stated mission to investors, trader and the public from
unethical practices
in the commodity and financial futures and options
markets. In addition, the
CFTC is responsible with creating the regulatory
environment that will foster a
free market environment that fosters competition. The
CFTC has the authority
to close any unregulated entity in the retail forex
industry.
The NFA is another regulatory body that enforces
adherence to certain capital
requirements, and maintenance of a sound financial
structure by its members.
It also requires that member firms actively supervise
their employees, agents
and affiliates to prevent fraud and unlawful activities.
Since not all forex brokers are members of the NFA, it
is important to seek those
that offer the added transparency of membership, in
order to minimize the risks
associated with fraud and similar illegal acts - Canada: BCSC, CIPF, OSC
- United
Kingdom: FSA UK
Forex brokers are regulated by the Financial
Services Authority (FSA) in the
United Kingdom. Apart from its usual supervisory duties, FSA rules require that
client deposits be segregated from the funds and accounts of the brokerage firm.
In other words, in case of bankruptcy due to fraud, or mismanagement, the
customers funds are safe. The advantages of this requirement are self-evident.
- Switzerland: SFDF, ARIF, FINMA (Require to have a banking
license)
Our advice for beginning traders is to be wary of forex
brokers which are only
active in Switzerland or are only registered with Swiss
Authorities. Many scammers
have been exploiting the reputation of Switzerland as a
banking center by
registering their fake companies with the Swiss
authorities who are very lax
about the regulation of the retail forex industry.
The main regulatory body in Switzerland is the
Swiss Federal Banking Commission
(SFBC). But many scammers choose to register their firms
with one of the private
regulatory institutions such as
Organisme
d'autoregulation fonde par le GSCGI,
Polyreg and
Association Romande des
Intermediares Financiers, as these bodies
only concern themselves with money-laundering issues,
and are generally very lax
on customer protection.
It is expected that the Swiss Federal Banking Commission
will bring all forex brokers
under its own supervisory structure by establishing a
body similar to the US NFA,
but until that plan is in effect, retail customers of
forex brokers in Switzerland
are basically unprotected against fraud. - Sweden: Swedish FSA
- Denmark: Danish FSA
- Spain: CNMV
- Japan: FFAJ, FSA Japan
- Hong Kong: SFC
- Australia: ASIC
The Australian Securities and
Investment Commission (ASIC) regulates forex trading
in Australia. All legitimate brokers providing retail forex services must be
registered
with this body which enforces capital requirements. Australian law requires that
any
foreign exchange broker acquire an Australian Financial Services License, or be
licensed with the Reserve Bank of Australia. - Dubai: DMCC, DGCX, DFSA, ESCA
Step 4: Read reviews
about selected brokers you should to search for reviews
online in order to make a decision: type in your Search browser: "[Broker
name] reviews" and follow the links to read more reviews. As much as reading reviews about Forex brokers can be helpful, it
also can be confusing and overwhelming. Often times we hear from
traders that after reading reviews they've seem to have hit the wall and
no longer sure what broker to choose, because there is so much bad and
good mixed up in reviews about every single broker, it is almost
impossible to filter out the truth and make a choice. What to do? We suggest sticking to the simple rules: a) If a broker has been in the industry for more than a decade - it
tells you that the company knows a lot about doing Forex business and
caring about clients, otherwise it won't be here today. b) If a broker is regulated by a major regulatory body in its country -
it tells you that a broker is serious about its business and making
necessary efforts to align with rules and requirements imposed by the
supervising bodies. c) If a broker offers more that one trading product, e.g. besides Forex
also has Futures, Stocks, Options, Commodities, CFDs etc - it tells you
that a broker runs a larger business, carries more responsibilities and
has more clients trading with them. Filtering good and bad reviews Be selective about reviews you read, always analyze who was the person
who wrote a review: was it a professional trader, or a novice. By the
actual message of the review it is often possible to see not only the
level of education a trader has, but also how well he knows the subject he
writes about. This way you'll filter lots of bad reviews where newbies
accuse brokers in troubles they fall in because of own incompetency. Apply a filter to 5 star reviews as well. It is not rare to see reviews
submitted by brokers themselves in order to boost own ranking. These
reviews have a special "flavor" too and despite many efforts to hide the
real face of the reviewer, it is not difficult to spot a promotional
message hidden behind the review, other times it is 100% clear it was a
promotion. Your job is always to have a cool head and judge everything
objectively. Step 5: Final tips for
the right attitude Finally, your approach to choosing a Forex brokers should be somewhere
similar to the process of choosing the right bank to trust your money to:
reputation, transparency, convenience of carrying operations with money,
good customer support. What is Client Agreement?
As practice shows, many Forex
brokers may (forget?) to update their websites according to newly changed
trading conditions, e.g. show 1 pip spread while in reality it is already
2 pips, allow scalping, while in reality - don't. If you don't read
Client Agreement, but instead simply put a check box "I agree" in front of
Terms and Conditions while applying for an account, you're doing yourself
no favor. |