Those who are looking for a brokerage are confronted a huge choice there is a seemingly endless selection of online brokers to choose from. It is no wonder that those new to online trading are often confused in-regards to which brokerage would be the right choice for them. This article aims to help equip those looking for a brokerage firm with a list of important factors to take into consideration.
Most of the traders are likely to be placing all of their trades through one of the platforms offered by their brokerage. This makes it highly important to do research into the platforms offered by prospective Forex brokers. For example, a trader who wants to engage in algorithmic trading is going to have certain requirements from a trading platform? At the present time the MetaTrader 4 & 5 platforms enjoy a dominant position within the industry with the majority of brokerages offering one of these platforms to their clients.
While the platform has much to be commended for it may not be up to the requirements of all traders. Those with an interest in social and copy trading, may want to look for brokerages offering the Sirix WebTrader platform. This easy to use platform has built in social and copy trading functionality. With the majority of brokerages offering free and no commitment demo accounts traders have the ability to try out a variety of platforms and determine which platforms suit their needs best.
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Trading conditions are the next thing which should be considered and should be high up a traders priority list. With many brokerages offering a variety of trading accounts it can often be difficult to directly compare what’s on offer. Trader should first determine whether what type of execution they want. In recent years their having being a growing number of traders looking for brokerages offering No-Dealing Desk or ECN/STP execution. This is due to the believe that such an execution model removes any potential conflict of interest between a trader and a brokerage. While ECN/STP execution may have some advantages you may find brokerages offering such accounts unable to offer you such a wide of selection of instruments and markets. There may also be higher barriers to entry with ECN/STP brokerages requiring higher minimum deposits. This means it’s down to a trader to determine what account type would ultimately suit them best.
Once you have determined what account type you would like it is much easier to directly compare brokerages. Traders should look into the typical spreads offered, minimum and maximum volume size, overnight fees and any other factors which may specifically affect them. For instance those looking to use a high frequency trading strategy may want to make sure that there are no limitations on the use scalping strategies. For these ends it’s important that traders make sure they do research into all the terms and conditions associated with the particular account and brokerage they are considering trading with.
Regulation is something which is often overlooked by those searching for a brokerage, but should be high on a traders list of priorities. While there are a huge number of brokerages vying for traders business a much smaller selection of these firms are regulated in jurisdictions which posses a strong reputation for financial services regulation.
Why is this important? A strong regulatory environment provides traders with certain safeguards which are particularly important if trader intends to invest a substantial sum of money into FX trading. For instance brokerages regulated within the European Union are required to comply with pan-European legislation which sets out minimum standards of financial regulation for financial services companies. While the absolute level of regulation does vary across different European countries, European legislation (namely MiFID) sets out minimum capital requirements, enforces segregation of client funds, and has led to a creation of the investor compensation funds which can provide support to retail traders if their brokerage was to go bankrupt. These measures provide traders with a certain level of protection against wrong doing with national regulator ensuring that brokerage firms are obeying financial markets legislation.
While regulation varies across the world many jurisdictions have introduced Forex regulation which also sets out similar requirements. Outside of the EU jurisdictions such as Australia have gained a strong reputation for providing traders with a strong level of protection and security. The protection given to traders by regulation is something which is extremely important and will help a trader avoid being a victim of fraud or mistreatment.
Once you have determined that a brokerage is regulated, offers competitive trading conditions, and the platform you desire. It is worth spending some time looking into the reputation of the brokerage you are considering trading with. This can be done by browsing user reviews, looking on industry forums and asking other traders. Determining the reputation of a brokerage can be difficult with not all reviews on the internet being impartial, this makes important to take into consideration the quality of a site before simply accepting what is said. Despite this it is still worth trying to get a feel for the reputation of a brokerage before opening account with the said firm.
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