How to choose a broker?
If you read my last post, you probably thought about starting your investment adventure. So the absolutely first step to investing is to find a broker. In the beginning you need to find out what kind of brokers are there. You will also learn about their pros and cons.
1. Market Maker – MM broker usually don’t direct their client’s orders to Forex market. As you can see looking at the name, this broker actually creates it’s own Forex market. How does it work?
This kind of broker loses when their clients gain. That’s why a lot of them don’t have the best reputation.
It is a good option for beginners, but it’s not that great for people who operate the capital as big as 30-40k deposit. It’s simply not worth it. MM brokers often offer bonuses and low entry barriers.
Cons:
- A high spread during important publications
- Withdrawal rejects
Pros
- Low minimal deposit
- Permanent spread
- High leverage
2. Electronic Communication Network – ECN Broker directs client’s orders directly to the Rofer Market. The participants of this market are: private and public banking institutions, other brokers, companies, financial institutions, investment companies, and individual investors. This kind of brokers allow you to make all kinds of transactions.
Cons:
- Spread depends on the market situation
- High minimal deposit
- Commission
Pros:
- No withdrawal rejects
- Low spread
- High security
3. Straight Through Processing – STP Broker directs all the transactions to so called Liquidity Provider (investment banks, other brokers, investment and hedge funds).
Cons:
- Spread depends on the market situation
- Possible commission
Pros:
- Direct transactions
- Low entry costs
- Low spread
So now you know the types of brokers, now let’s dive into the things you need to consider while choosing a broker.
1. Capital
You should think about how much capital you want to invest. Remember the number one rule of trading: never, ever put the money you’re afraid to lose int it. Never invest all your savings! Also, check if your broker is regulated by financial supervision institution. If so, which countries it is regulated in?
Additionally, check the minimal deposit your broker requires. Some require 20$ and some 200$ (and so on), so it’s worth checking it.
Account types. See also if your broker has a VIP or Premium Account option. With higher input, you would benefit from using them, as they can contain lower spread. They offer many other bonuses and benefits.
2. Time
Think about how much time you you want to spend on analyzing market and checking prices daily.
If you plan to spend a lot of time, daily speculation and scalping are for you. It’s worth to look for a broker with low spread and small commission.
However, if you don’t have much time for analysis, it would be better if you become interested in long term investments. In that case, you should search for a broker, who has low SWAP points (costs of keeping the position for a couple of days). Another way iscopying transactions of other traders. Before you start so called social trading, you should test the signals generated by others on a demo account.
That way you can check if the people you want to copy from, are credible.
3. Which days you can speculate on?
Forex market is opened 24/7, however, the best moment is when European exchange overlaps with American exchange. It happens between 9:30am and 11:30am (GMT-4).
4. Which Financial instruments are you interested in?
Types of currency, available contracts for precious metals, oil, resources, and exchange indexes. It is a factor, you should consider to choose the best broker for you. Another important element is the level of spread, SWAP points, and commission.
5. How will you manage payments and payouts?
Check the way your broker allows you to pay your funds in and out. If you choose a foreign broker, consider the cost of currency exchange.
6. Transaction platform
See what are the functionalities of the transaction platform. The most popular one is MetaTrader 4. Find out if the platform of your choice is available for PC, tablet, or mobile phone.
To sum up, choosing a broker is not as simple as it may seem. You have some research to do, , but it is really worth it. Why? Because you will be sure that your money is safe, and y
ou have good conditions to earn and invest.
I hope you liked the article. If you’re still hungry for knowledge, sign up for our newsletter, to never miss an update. I also recommend checking out our other entries.
Have a nice day! Ted&Greg
