A trader should not make the mistake to think that all Forex broker are reputable and handle their business honorably. After some research is made regarding them it is apparent that some of them use a dealing desk in order to gain from less experienced traders, sometimes delay order execution until it is favorable to them or they do straight fraud by betraying the confidence of the customers who have put their faith in them. It becomes imperative that a lengthy investigation must be made regarding brokers by examining their site and the opinion of the customer on the forums in order to ascertain that what they boast about is also what they provide.
In order to help traders before they make a deposit to a broker, in the following a definition for brokers will be given, along with a way to verify them online and how to be sure that they respect the current legislation. This article will tell you what is good forex broker and what should you bear in mind while choosing best forex broker!
What are forex brokers?
Forex brokers are financial organizations that intermediate transactions on behalf of their customers. The orders are transmitted by the means of a trading platform that has online connectivity. A few fx brokers let its clients to trade directly through their website, others have a proprietary trading platform that the users have to download and install and others use independent Forex platforms, the most common choice being MetaTrader 4.
Brokers do not limit themselves to provide order execution and to offer different pricing schemes; they also offer market information, tutorials and documentation to help their traders with their decisions. The information can also contain charting software or news regarding the evolution of the Dow Jones index, for example. They can also offer webinars, seminars or other educational materials that are of paramount importance for a starting trader.
For important clients, market commentary may also be provided as well as the factors that might influence exchange rates or other economic variables. A coaching service may also be provided, by allowing traders to talk to top market experts that can offer professional advice. Even if these experts are not right all the time, invaluable information may be gained by observing their way of thinking and by learning from them the principles of trading.
Most of the Forex brokers earn their revenue by offering a dealing spread or by charging a commission. Even if the customer earns money or not the Forex broker will make money regardless. This explains why a broker wants to attract as many customers as it can, by making them all sorts of promises and presenting all types of bonuses. A client has to understand which of such offers are real and which are not. This understanding is one of the keys to the question of how to choose top forex broker!
Examining a Broker Before Live Trading
It is important for the trader to know as much information as he can about the broker he is about to do business with. It is important for the broker to provide fast execution times to prevent slippage and to have a no requotes policy.
Slippage refers to the execution of a stop-loss or of an exit order at another price due to the volatility of the market and because a lot of market orders are executed at that time. Having your broker process and execute your orders faster than anybody else can help you obtain the price that you want before it changes.
Requoting is worse than slippage, because the order execution will be delayed intentionally in this case. The broker waits to see how the price is going: if the price moves against the trader, no requiting will take place, but if it moves in favor of the trader, the requoting will occur and the trader will enter or exit the position at another price than he requested. By taking requiting into account, the spread can effectively increase from a pip to as high as ten pips, hence decreasing the trader’s profit and putting him in a very disadvantageous position.
The trader must talk with the broker about the details of everything and ask customer support about the details he did not understand. The fine print needs to be inspected thoroughly in order to prevent future surprises. The broker’s trading platform also needs to be according to the needs of the trader, by allowing him good visibility of the major indicators and enough simplicity as not to hinder him.
Forum posts and reviews are a way to verify if the broker is reputable or if he had problems in the past. Unhappy customers are likely to be the most vocal and to express their discontent all over the Internet, depending on what experience they had with that certain broker, so even a perfunctory check will prove most useful when trying to form an impression about a broker.
The broker can also charge their clients with invented or imagined breaches to their terms and conditions. If the terms interdict “pip hunting”, which means opening and then closing a position in quick succession, then the broker can charge a lot of customers with this infringement and then confiscate their profits. That’s why users have to make detailed investigation before depositing money in their account, otherwise the same thing risks to happen to them.
Generally a trader needs to avoid brokers that are known to permit slippage, requotes, front running, stop hunting or that have clauses that interdict certain strategies. I order to attract customers, brokers will say that they do not endorse these practices, but the truth needs to be determined because some of them may also lie and it is in the trader’s best interest to avoid them.
How to Chose Top Forex Broker: Forex Regulation
Another aspect that needs to be verified when choosing a broker is if they are regulated or not and by which agency. The purpose of the regulatory agencies is to make sure that the financial brokers do their business in a very transparent and professional manner, as well as protecting individual traders. The regulating agencies verify the brokers by examining their accounting records in order to determine that their capital requirements are met. In the event of complaints, regulating agencies may even take measures to shut down fraudulent brokers and help the customers in getting back their funds.
In the US, the National Futures Association (NFA) keeps an eye on many Forex brokers of any nationality that do business with US clients. Also in the US, the Commodities Futures Trading Commission (CFTC) has the authority to fine or suspend any broker that doesn’t manage his business according to the Commodities Exchange Act. Being regulated by both of these agencies can help a broker convince the public that they are trustworthy and traders should choose brokers that are regulated by at least one of these agencies.
Even if Forex brokers don’t activate in futures markets, they register with the NFA in order to increase their credibility and their legitimacy in the eyes of the public.
Other regulatory agencies include the Australian Securities and Investments Commission (ASIC), the Financial Conduct Authority (FCA) in the UK and the Swiss Federal Department of Finance (Swiss PolyReg). There are also local European agencies that oversee a specified region and they do their business in accordance with the Markets in Financial Instruments Directive. The fact that a broker is regulated by one of these agencies can also help him to obtain credibility.
As you have learned the most important attributes of the forex broker and got a few forex broker tips, it is time to check our fx broker reviews and see which one is the most suitable for your needs.
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