How do you choose a broker you can trust? This can be difficult because you will find many brokers on the Internet, and each of them will have negative reviews and dissatisfied customers. How do you feel safe giving your money to brokers? In today's article, I will tell you everything I know about choosing a reliable broker who will not cheat you.
A good broker is an important part of successful trading. You give a broker your money, you rely on them to execute your trades, you need their help when something goes wrong.
You may want a broker with zero spreads, with VPS service, with a huge deposit bonus, with special accounts or other special features. Let's take a look at what you should consider when choosing the best broker.
One of the fundamental factors of your success in the Forex market is the right choice of a broker, or, in other words, the company where you will open an account and through which you will conduct foreign exchange transactions. Choosing the right broker will help both to multiply your capital and save a lot of nerve cells.
Currently, there are many companies providing brokerage services (their list along with brief information can be found in the Best Forex Brokers section). All of them can be divided into two main categories:
- dealing centers (DC);
- Investment banks.
Here will be a list of the main parameters, which are fundamental when choosing a broker, from the most important to the insignificant.
1. the amount of your initial capital
2. the fame and reputation of the broker
3. operating hours during the week
6. Various additional restrictions on trading
7. reliable communication with the broker and technical support
8. additional service products for clients
9. user-friendliness of operation with software
So, the fundamental factor in choosing a broker is the amount of your starting capital. Although nowadays there is an application for a purse of any thickness on the foreign exchange market. The overwhelming majority of the Russian and foreign, focused on the Russian-speaking user, the broker companies demand the deposit from 2000$. Also companies which start working from 10 000$ are widespread. And it absolutely does not mean that for the considerable sum of the enclosed means you will be offered the best conditions and hundred-per-cent guarantees of duly payments and safety of earnings. It all depends on the specific service provider.
There are proposals to start trading with 1000$ or even less (so called mini-Forex), when your position is not taken directly to the market, but only by summing up the positions of several participants.
If you adhere to the opinion that you should begin to work only with respectable Western banks, then your account size can't be less than $50,000, and more often - $100,000.
There is an opinion that you should start working with such sums. However, in our conditions, and based on our own experience, you can do with much smaller funds. The main rule to be followed when determining the initial capital is that even losing the entire amount should not be ruinous. Also, do not take seriously the proposals of trades with $ 100, etc.
The optimal amount, especially for beginners, is in the range of $ 2000 - $ 10000.
Notoriety and reputation of the broker.
Before investing, you should carefully gather information about your future broker. Pay attention to the time of existence of the company in the market of services. Obviously, more "aged" brokers are preferable to beginners because of stability and reliability. Though sometimes new companies offer the most comfortable working conditions.
Ask your traders' friends or visit Internet forums, which are devoted to the currency trade. Usually, the facts of fraud do not go unnoticed in the trader's environment. Certainly, it is possible to stumble upon anti-advertising, but if the name of your potential broker often appears in various black lists, you should treat such facts with increased attention.
Choose those brokers, about which it is possible to collect more positive reviews.
Preference should be given to companies which open at night on Monday and finish close to midnight on Friday. Imagine you are leaving a profitable position over the weekend in order to earn more. You put a protective order so that even with an unfavorable outcome to earn a little and go to rest, hoping to markedly increase your capital. It might happen that on Monday night an unexpected event takes place, which causes a sharp increase in the rate against your position. The broker, who arrives at work at 9 o'clock in the morning, will execute a protective order at the price he sees on his monitor.
Thus, because of the interruption in the broker's work it will be rather risky for you to leave the position open over the weekend.
When rendering services at the Forex market a broker earns only on the so called spread - the difference between the price of currency buying and selling. The spread is the same as difference in exchange rates in the bank. Do not confuse Forex with the stock market, where commissions are deducted from each transaction.
The vast majority of brokers in Forex earn only the spread. So if you find a bank or a brokerage company that stipulates any additional commission, feel free to go on to find another option, because it is needless to say that any commissions have a negative impact on your account.
Remember that there is a commission for the transfer of the position after one day - the so-called Swap. But Swap has a feature to be not only negative, but positive as well.
The commission affects the state of your deposit.
The spread is the main earner of the broker. There are two types of brokers: with fixed spread and with floating spread. The fixed spread is characterized by a constant difference between the buying and selling rate, regardless of the market situation.
Many brokerage companies practice the floating spread rule, limiting themselves to the rule that the fixed spread shall remain on a calm market. But in practice we encounter situations with sharp price fluctuations almost every day, when spread widening in 50(!) pips not only creates inconveniences, but also can be very destructive for the deposit.
But the floating spread has its own advantages. For example, on a calm market, the floating spread may decrease to 1-2 points, while the fixed one remains constant in any situation.
Here we would like to warn a beginning trader that many brokerage firms practice additional restrictions on the trading. The most popular is the provision of obligatory transactions for a certain period of time, for example, for a month.
Watch carefully when concluding a contract, determine which restrictions are obviously unacceptable for you.
It is mandatory to be in constant contact with the trader 24 hours a day, preferably not only through electronic terminal, but also telephone. Technical support in most brokerage companies works from 9 to 18.
Unfortunately, it is difficult to test the connection work before account opening.
Various programs of theancial analysis, getting free quotations and news will make your life much easier, especially in the first months of trading.
Pay attention to this point if you have to choose between two equal brokerage firms.
Of course, you can get used to any software. But still we recommend installing a demo-version of the trading terminal and the programs provided before concluding the contract.
A friendly, understandable interface will contribute to a pleasant work from the very first days, though, of course, this point can be considered secondary when choosing a broker.
You can't trust the reviews of brokers that you can find on the internet.
Most brokers know that you look for reviews about them before you open a trading account. So they purposely create fake reviews and post them all over the internet. They leave bad reviews for their competitors and good reviews for themselves. Therefore, it will not be easy for you to know if the review is true and written by a real trader or if it is fake.
More often than not, the negative reviews you find will get your attention. If during important news releases and high volatility, your broker widens the spread and your stop loss gets hit, you will most likely leave a negative review on that broker. However, if your broker gives you good service and you are happy with everything, you are unlikely to write about it. So this is an extra reason to think about the positive reviews you find on the internet and who is leaving them.
Many brokers often have different offices and representative offices in different countries and regions. The same broker can have good service in one office and poor service in another. If you are unhappy with the service at one office, you leave a bad review on the broker's company in general. Therefore, the number of negative reviews can be substantial, but it will not be an indication of the broker's performance. Check
fake forex brokers list
and reviews that you can find on the internet to prove this suggestion.
Most traders are looking for the broker with the lowest spread. However, there are much more important things to pay attention to. And spreads will usually be quite low at all brokers, because the forex market is quite competitive and spreads are now about the same at all brokers.
Always invest a small amount of money in a new broker first. And only then, if all goes well, gradually deposit more funds.
A regulated broker has external controls that limit its fraudulent activities.
However, not all regulators are the same. Good regulators make sure that the rules are strictly adhered to (e.g. they check that there is sufficient capital and that there are regular audits). Bad regulators do nothing at all, but sell their seal for a small fee.
The best regulators would be in Singapore, the UK, or Australia. The bad ones will be in offshore zones, the Cayman Islands, St. Vincent and the Grenadines, or countries you've never heard of at all.
A good broker must provide 24/5 support and be willing to politely and professionally answer all your questions and help sort out your problems. If a broker doesn't provide this kind of service, then there is no excuse for it and it would be better not to do business with it.
Choose a broker with reliable and fast customer support. Check how you can contact them. Test them out. You can even talk to the broker's support before you sign up to see how they respond.
Many brokers only offer accounts in the major currencies USD and EUR, but some brokers allow you to have ruble accounts.
How does this affect you? Having an account in a currency other than your bank account or e-wallet account can result in higher fees during deposit/withdrawal transactions. I don't think this is a big problem, but you may prefer to have an account in a certain currency.
Deposit and withdrawal methods are very important, but these days most brokers support all popular payment systems. You will be able to use bank transfer, plastic cards, electronic wallets WebMoney, Yandex.Money, QIWI, Skrill and Neteller.
Check the available deposit and withdrawal methods before registering with the broker.
All large brokers have a minimum deposit from $10 to $500. This is something to consider if you have limited capital to invest or if you simply want to try trading for real money.
Bonuses can be very attractive, and some brokers have much better bonuses than others. Some brokers do not offer bonuses, while others offer bonuses on every deposit. Check out the bonuses available before registering with a broker if you want to get extra free funds.
I mean currencies, indices, stocks, commodities, cryptocurrencies, etc.
Some brokers have a limited list of instruments that you can trade. Other brokers offer a wide range of instruments. The list of trading instruments can also change at the same broker with different account types.
Most brokers provide the opportunity to trade on major and cross currency pairs. But not all of them offer exotic pairs such as USDRUB, USDINR, USDMXN.
Since the spread is the price you pay to trade in the market, it is preferable to find a broker with low spreads.
Currently, many brokers have about the same spreads, so just make sure that the broker you want to trade with has spreads that are close to the market average.
Some brokers offer accounts with zero spreads and varying percentages of commission.
These days, money moves quickly from one place to another. With the help of the internet, we have the ability to withdraw our money and spend it almost instantly.
A good broker should withdraw your funds within a maximum of 5 business days.
If you hear excuses from your broker like:
"Our bank is closed, so we can't transfer money to you anytime soon."
"You have to keep your funds with us so your returns don't go down."
"You better top up your funds to get bonuses from us."
So your broker is probably a scammer.
Nowadays all brokers offer almost the same trading opportunities, the same spreads, the same methods of depositing and withdrawing funds, but some brokers offer more than others.
This can be:
Training materials: courses, videos, trainings, webinars.
Free trading advisors and services for trader.
Social trading opportunities.
Programs of loyalty.
These are just some of the additional features your broker can offer, but there may be others.
Many of you trade on the Meta Trader 4 platform that most forex brokers provide. However, some brokers only offer you other platforms. So think first before you give your funds away. The convenience of trading is very important.
If you use trading advisors, I highly recommend you to use a broker that offers a virtual private server (VPS).
The advantage of having a broker with a VPS service is that VPSs are usually located near the broker's servers, in addition, it will be easier for the broker to provide you with technical support. If you trade with sufficient funds, the VPS can be free for you.
You have probably heard about different types of brokers such as ECN, STP and dealing center. Let's look at each of them in detail.
An ECN broker does not take the opposite side of the trade with the client.
It acts as a kind of "bridge" which connects retail traders with liquidity providers (like banks or hedge funds) and takes a commission for each trade. A commission will be charged on each of your trades. You will also be able to see the flow of buy and sell orders. There is usually a minimum account size requirement to trade on ECN.
Similar to an ECN, an STP broker acts as a "bridge" and connects you to other liquidity providers. However, you will not be able to see your order flow. Instead, your broker will act on your behalf and transmit your order to the liquidity provider. A spread will be charged on each of your trades. Re-quotes are also possible.
A dealing desk takes the opposite side of customers' trades and charges an additional spread on every trade.
If you are a profitable trader, they will match your orders with those of other profitable clients and take you to the interbank market. If you are a losing trader, they will take the opposite side of your trades, taking your losses directly to themselves. You will not see the flow of orders. You will have an opportunity to trade with minimal lots. The size of the initial deposit can be minimum. Spread can be fixed on each deal.
If you are a novice trader, you can trade in a dealing center, because it requires a minimum deposit to start and you will be able to trade with minimum lots.
If you are a profitable short-term trader, try switching to an ECN broker, as you can save more on transaction costs.
However, if you are a swing or position trader, the spread will have almost no effect on your trading results.
Document everything. For example, if there is a sharp price spike on your broker's chart that other brokers have not seen, take screenshots and save the correspondence with the broker in the chat room.
Demand an explanation from the broker. If the problem was the broker's fault, you should get your money back. If this has not been done, then it would be better to look for another broker.
Share controversial situations on social networks and traders' forums. No broker would want to have their reputation damaged, so they will try to resolve your situation as quickly as possible and in your favor. Check reviews and guides on
If nothing works, you can complain directly to the regulators. If the regulator is reliable, they can impose a substantial fine on the broker or take away his license altogether.
Often we can hear that Forex is a scam, is it so? No! Forex is just an unfortunate experience that you gain over the years. Maybe you'll be lucky and you'll come across a broker who will be only happy for your profits. You can simply register with a proven broker that many traders trust.
The answer is simple: you will lose all your deposits. There are many ways to destroy any trader's account. For example, an unsubstantiated increase of spread, from 2 points to 12. How then how to trade with those whose level of profit is 20 points, and the level of loss limitation is 15 points?
It turns out that a trader risks 27 points for the sake of making 8. The capital management rules will not approve of such a risk, and most likely, your deposit will dissolve like sugar in water.
Therefore, before choosing a broker, read reviews about it. The reviews such as: forex - a scam; forex - the casino; forex - plums traders, do not count as reviews.
Pay attention to the conditions offered by the broker, and look for the following in the reviews: whether the broker complies with the specified conditions. If yes, then there are no claims to it, you can register, make a deposit and start trading.
What's that supposed to mean? Trading on a demo account you will not experience real trading conditions, most likely they will be perfect, so I advise you to open a cent account which you can deposit to 5 dollars. Yes, you didn't think so, only $5.
So you will be able to understand from your own experience whether the broker you have chosen complies with all the conditions or everything that was written on the main page is a sweet bait for inexperienced traders. If you like the conditions, then you can safely replenish your deposit and start trading, knowing that you will be provided with a strong back.