How to choose a broker?
To work efficiently at the Forex market, it is important to choose not only a proper trading strategy but also a reliable Forex broker. The broker’s reliability is determined by to its readiness to fulfill its financial and other obligations. In the list below you can find some initial points which should be taken into account when choosing a broker.
Year of Foundation and Dynamics of Development
The long-term activity at the market usually serves as a sign of the company’s financial stability, well-established business process, developed risk management system and the professional skills of the staff. The positive development dynamics (offers of new services, opening of branches) also points to the broker’s serious approach to the business. However, the young age of the company does not imply that the provided services are not professional. As a matter of fact, a great number of prominent Forex brokerage companies have been established exactly in the recent five years.
Registration Country and Regulation
The country a broker is registered in is also of great importance. The fact is that the legislative authorities of all developed countries strictly regulate the brokers’ activity, forbidding them to carry out any illegal machinations with their clients’ assets. Besides, in these countries it is always possible to apply to the broker’s regulator directly in case of any disputes. Brokerage companies registered in the offshore countries are not under such a rigid control of the government which makes their reliability rather doubtful.
Safety of clients' funds
You need to check how a broker protects its clients’ funds in case of unforeseen events, particularly in case of bankruptcy when a broker is unable to fulfill its financial obligations to the clients.
One of the easiest ways to limit the risk is the segregation of bank accounts. It means that the clients’ and the company’s funds are kept in a bank at different accounts so that the broker can’t use its clients’ assets in its operating activities.
Besides, serious brokerage companies have different schemes of risk insurance. For instance, in Cyprus there is established the Investor Compensation Fund controlled by CySEC (Cyprus Securities and Exchange Commission). In case any Cypriot Forex broker turns bankrupt, its clients receive a compensation from the Fund in the amount of up to EUR 20 000.
In Great Britain there exists a similar Financial Services Compensation Scheme with compensations up to 48 000 pounds. In the USA clients of Forex companies are not obliged to insure their funds. However, a lot of respectable USA brokers cooperate with large insurance companies so that their clients can insure their funds against risks there at a certain charge.
It is recommended to pay a special attention to the following points when studying the brokerage contract:
1. The contracting party. Some brokers may have several legal entities, some of which are registered in a developed country, regulated and provided with all necessary licenses and others are located on the territory of an offshore country. The former generally serve to promote the broker’s services while the latter act as contracting parties in agreements. All this makes the reliability of the broker rather doubtful, so before signing the contract check what legal entity is indicated as the contracting party.
2. Recipient of funds. The replenishment of all trading accounts should be carried out via a bank account of the company which is the party to the concluded contract. Otherwise, if the funds are transferred to a third party, it is not clear with whom lies the responsibility to transfer the earned funds to your account.
3. Subject of the contract. If other services different from broker services (for example, consulting) are specified as the subject of the contract, you may face problems with the withdrawal of your funds in disputable situations.
That’s why we advise you to read the brokerage agreement attentively before opening the trading account and depositing your funds. If you have any doubts, feel free to contact us for a free consultation on any issues.
If a broker is involved in serious conflicts, legal proceedings, or caught in fraud, these facts become quickly known on the Internet. However, this information should be carefully checked. Even at independent and well-moderated forums dark PR methods are widely used. As known by experience about 70% of such kind of messages are written by the brokers’ representatives and are aimed at tarnishing their competitor’s reputation. That’s why only official sources of information should be trusted.
Basic trading conditions
Recently the fierce competition has stimulated mass access to the Forex market: the sums of the initial deposit, spreads and minimal transaction amounts have been reduced. However, careful attention should be paid to the companies which offer the Forex trading with the initial deposit of 1 dollar. Many of these companies intend to get as many clients as possible and do not care much about the quality of their service.
Basic trading conditions are: minimal sum of the deposit, spreads and commission fees, number of financial instruments, minimal amount traded (lot), leverage, stop out and margin call levels.
Besides, a lot of Forex brokers along with currency pairs offer trading contracts for metals, goods, shares, indices and other assets.
Quality of the service
The efficiency of the broker can be also judged by the quality of the provided technical support. If you are consulted professionally and respectfully and the questions are answered at once, the broker is client-oriented and you will feel comfortable working with it. Diplomacy in settling the disputes is also an important sign of the high-quality service.