How to Choose Your Broker: Guide for Beginner Trader
6 minutes for reading
Everyone serious about trading on financial markets will inevitably face the necessity to choose a broker. The Internet is full of various offers and ads. At first glance, it seems virtually impossible to tell a lousy broker with a good advertising campaign from a trustworthy partner providing high-quality service. In this review, we will discuss the main criteria for distinguishing between them.
License
Any broker needs to be licensed for their business; the information about the license should be provided on the broker’s website. The license is a document permitting the broker to carry out their professional activities. The licenses are given by special entities – regulators; on their official websites, you may check if the broker has the license.
Almost all countries have their financial regulators. They might be state entities, central banks, non-state organizations and associations of market players. For example, the following US and European regulators are considered authoritative and famous: CFTC (Commodity Futures Trading Commission), FCA (Financial Conduct Authority of Great Britain), CySEC (Cyprus Securities And Exchange Commission).
To get the license, the broker is required to own a substantial capital and to comply with the market requirements. Brokers are revised from time to time, and if some violations are detected, the regulator may charge a large fee or even call the license back. Regulators may also act as referees in the cases of arguments between the broker and the client.
Trustworthiness
An important criterion of the company’s reliability is its age. If a company is just starting its broker activity, it is possible that it will not be able to provide excellent services at once or that it will close soon falling prey to the rivalry. It is more reliable to choose the brokers that have been on the market for a minimum of 5, better 10 years. As with good cognac, the more it ages, the better.
It is considered good practice for Forex brokers to participate in organizations providing additional protection of the clients’ interests. Such entities (FinaCom, Commission For Regulation Of Relationship Between Financial Market Participants) not only act as referees in the cases of arguments but also accumulate compensation funds. These funds act as insurance if the client was decided to be right in the argument but the broker declines to pay the compensation; then it will be paid from the fund.
A fast and professional client support team is also a sign of the trustworthiness of the broker. A serious company has several feedback channels: a member's area, e-mail, 24/7 support phone number. For example, if your Internet connection is bad, you can always call the support, ask for the current quotations and open or close your positions.
Reputation
Apart from the two criteria above, the reputation of the company should also be evaluated. The latter implies the popularity of the broker, its openness to the client, a lack of loud scandals or troubles with money withdrawal. On the Net, there are plenty of resources providing ratings of broker companies. A good company with a clean reputation is likely to be in the top ten of the most ratings.
Regular participation in exhibitions and prizes in various categories adds up a lot to the broker’s reputation. The prizes confirm the broker being devoted to their work. Also, the reputation of the company is filled up with the feedback of real clients. Of course, there will always be those who were dissatisfied but most of the feedback on a good broker will be positive.
The website of a company is its face. It should feature all the necessary information: licenses, the company’s history, prizes, trading conditions, contacts. A blog, a forum of its own is also good for a company. Such resources feature learning materials, provide an opportunity to ask questions from the company’s employees or share your thoughts with peer market players.
Trading conditions
After you have made sure that the company has a license, trustworthiness, and a good reputation, you need to assess its trading conditions. Below, we will discuss the most important ones but you should pay attention to those that are crucial for your trading preferences.
Money depositing/withdrawal
Before you start trading, you need to get to know the conditions of money depositing/withdrawal on your account. On the company’s website, there should be all the information in detail, including the banks and payment systems the broker works with, the commission fee size, the available currencies and whether there is currency conversion provided.
Spreads, fees, leverage
A serious broker company normally provides several types of trading accounts with slightly different spread, commission fees, and leverage sizes. You should study the conditions of each type and choose the one that suits you best. The spreads and fees must not be much higher than generally on the market; the possibility to choose the leverage size yourself is a good option.
Minimal deposit, currency
For beginner traders, the minimal deposit size might be an important criterion. Some large Western brokers do not like to fiddle with “peanuts” and raise the entrance threshold rather high. So, you need to make sure that the broker’s conditions suit you as well as check the currency you may open the account with.
Financial instruments available
You need to make sure that the broker allows for working with the financial instruments you prefer. As for me, the more instruments the company features, the better. It provides an opportunity to choose: if the trading situation on currency pairs is poor, you can switch to other markets: oil, gold, ETF, stocks, etc.
Trading platforms
As a rule, a good broker provides access to several trading platforms, sometimes including those designed by the company. You need to choose one or more that suits you. If you use mobile trading, make sure that mobile versions of the platforms exist.
Summary
Choosing a broker is a difficult task that requires maximal responsibility. The broker company should feature the license, high reliability, good reputation, and trading conditions that suit you. This is needed for you to work comfortably on the market, free of fear for your capital and enjoying high-quality service.
