3. Choosing a Broker

Choosing a solid and reputable broker should be the primary concern of any investor.

Trading is hard in and on itself, but when a broker is implementing practices that work against the trader, making profit becomes virtually impossible. So that confidence and trust in your broker is key in order to be able to devote all your attention to analysis and actual trading.

Requirements for a good Forex broker: good trading functionality, execution, and above all liquidity.

Key factors to understand when looking for a broker

  • Regulation & Safety of Funds

The regulatory status of your broker is one of the most important criteria for traders when choosing their broker. The main objective of regulation is to ensure fair and ethical business behavior. All Forex Brokers have to operate under strict compliance with the rules and standards laid out by Forex regulators, otherwise their activity is regarded as unlawful.

Some of the most recognized Forex regulators are the FCA (Financial Conduct Authority) located in the United Kingdom, formerly known as the FSA; CySec (Cyprus Securities and Exchange) out of Cyprus and the SEC (U.S. Securities and Exchange Commission) based in the U.S.A.

Tip: The broker should be able to easily prove compliance with national and international regulatory authorities. If a broker is regulated, the name of the Forex regulator should be transparently listed somewhere on the broker’s website.

  • Capitalization Level or Overall Size

Regulated brokers must comply with strict standards of capital adequacy requirements, i.e. they should maintain liquid capital that exceeds the amount required to cover all deposits placed by clients. Holding your funds with a broker that has issues with capitalization can be very risky.

Tip: Check the capitalization of your broker by looking at the regulatory body websites.

  • Customer Service

Professional brokers will offer several possibilities of contacting them e.g. via phone, e-mail, live chat. Customer service is paramount for a good collaboration with your broker, and should be readily available around-the-clock.

Tip: If you do not see a clear route to contacting someone at the brokerage on the website, this is a clear indicator of a red flag.

  • Some other things to consider when choosing a broker:

– Deposit and Withdrawal process (means, fees, segregated accounts).
– Number of currency pairs offered for trading (EUR/USA).
– Spreads should be competitive and consistent even during higher volatility.
– Initial deposit requirements; this is important for traders who wish to invest small sums of money.

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