Not sure which forex broker to pick? Well, can’t blame you — there are already a million of them out there, with a thousand more opening each day. Now, with the competition being as fierce as it is, it’s extremely difficult to tell an honest dealer from a shady one. That is, if you still haven’t read our 5 awesome tips on how to choose the right forex broker. Read the full text down below.
Online forex trading requires you to share a lot of sensitive data with your forex broker. These include a picture of your latest utility bill, a copy of your passport, bank account information, etc. Hence, it’s only prudent to choose a best forex broker that has some robust security measures in place; otherwise, you risk leaking your personal data in the case of a data breach. Some of the major things to look out for are SSL encryption and whether or not they have two-factor authentication (2FA) enabled. Usually, 256-it SSL encryption is the standard with the more reputable forex brokers, and 2FA makes it a lot harder for criminals to gain access your account; apart from the regular username and password upon login, you are also required to enter an RNG security code you receive through an app on your phone.
Spreads and Commissions
When considering offers from various forex brokers, there are two main things you need to be aware of — spreads and commissions.
Simply put, currencies are traded in pairs (EUR/USD, USD/GBP, etc.) and the difference between the “ask price” and the “bid price” are called the spread. The ask price is, of course, the price at which the broker sells a particular currency and the bid price is the price at which they buy a particular currency; naturally the latter is always lower. For instance, let’s imagine a currency pair, say, EUR/USD with the values of 1.2053/1.2055, the spread in this example is 2. Now, forex brokers usually make their money off of these spreads; the bigger the gap, the more they charge. This is also known as a commission. So, when you finally get to choose a forex broker make sure you pick the one with the lowest spreads. That way you’ll earn more profit from each transaction you make.
Basically, a forex trading platform is your window into the forex market. Therefore, you need to pick one that is preferably user-friendly, visually appealing, and highly informative. Additionally, apart from the visual aspects, it should also come with a few advanced technical and analytical trading tools to help you make decisions both faster and easier.
Now, how do you pick the best one?
Well, reputable brokers will, more often than not, offer free trial accounts to let you acquaint yourself with their platform first. For instance, the Ever Forex trading platform offers a free demo account where you get to practice with imaginary funds to learn the ropes of the trade without risking any of your own money. In addition, like our example platform, they should offer exceptional customer service and technical support for any questions or issues that may arise.
Leverage and Margins
In essence, leverage is the way you make huge profits with forex trading. It’s a high-risk high-reward system where you get to make higher transactions by utilizing your broker’s own funds. As an example, a leverage of 50:1 means that a forex trader with only $1,000 on their account has a spending power of $50,000. As such, every trade they make is amplified, quite considerably.
Still, leverage works both ways; meaning, you can lose your money just as easily. Generally speaking, extremely high leverage levels are mostly good for breakout traders who are looking to make quick trades. However, for the more regular positional traders, lower leverage levels make more sense; most often in the range 50:1 to 100:1.
Always utilize leverage with extreme caution.
When you go to your dentist, you expect them to have a medical degree. The same logic can be applied here as well; you don’t want to have any dealings with shady brokers (or dentists for that matter).
Now, depending on the country in question, there are various regulatory bodies. These include:
- Australian Securities and Investment Commission (ASIC) — for Australia
- National Futures Association (NFA) — for the US
- Financial Conduct Authority (FCA) — for the UK
- Investment Information Regulatory Organization of Canada (IIROC) — for Canada
Remember to double-check these before choosing your forex broker. Otherwise, you won’t have any legal bodies to turn to in case of potential scams or fraud.
Be smart and play it safe. Don’t pick a shady broker that will scam you out of your profits. Do some research instead; now you know how.