FOREX

What to Know When Picking a Forex Brokerage

forex-brokerNew prospective traders are confronted with a bewildering choice of Forex brokerages to choose from, this can make picking a first brokerage a daunting challenge. Today I want to present you with some tips to help make this important decision that little bit easier. There are a number of different factors that will come into play when choosing a brokerage to deposit with, which of these factors will be the most important to you depends largely on your personal preferences.

1. Find out about regulation

One factor that sets some brokerages apart from others is regulation. When you're looking at prospective brokerages find out about whether they are regulated. A brokerage being properly regulated provides you the client with an important level of protection. For instance MiFID (EU Regulated) brokerages are required to keep client funds in segregated accounts preventing your funds from being embezzled or used for business operations. Also MiFID regulated brokerages are protected by Investor compensation schemes which ensure that if the brokerage was go into bankruptcy or collapse that at least 20,000 Euros of your funds will be protected providing you're a retail client. Regulation varies country to country with some countries currently not regulating over-the-counter financial trading. I would personally do some research into regulation in your jurisdiction before deciding what brokerage to operate with. Another top tip when it comes to regulation is to take a look at a firms regulatory history and see if any disciplinary action has ever been taken against them, a series of fines or warnings might throw up a red flag.

2. Read other reviews (carefully)

When considering a brokerage you should be able to find a number of reviews online, a quick Google should suffice. It's always a good move to check out these reviews, though I would advance with caution as there are many biased and unreliable reviews out there. This is due to the fact many Forex brokerages run affiliate or partnership programs which reward individuals who refer clients to the brokerage. It is in the interest of these sites to oversell or hype up the brokerage as they can earn considerable amounts by doing so. But there are a number of genuine review sites or sites which allow customers to leave reviews regarding brokerages. I would also not that not all affiliates publish biased reviews with their being numerous affiliate who take an unbiased look at the brokerages they promote. I suggest that you check out Earn Forex whose website features user reviews of various Forex brokerages. Again you should be careful with these reviews and take them with a grain of salt, occasionally reviewers will trash a brokerage name unduly or due to the fact that they lost money from their own poor trading decisions. Another useful resource is ForexPeaceArmy which also has a forum in which users can make complaints in regards to brokerages. These kinds of searches can help you avoid making a poor choice in brokerage.

3. Think about what you want

There are a huge number of different brokerages online and which choice is right for you will often depend partly on what you want. Do you want a user friendly platform? Do you want a brokerage to give you a full education? Do you want a brokerage with a low minimum deposit threshold? Do you want to try out social trading? Personal factors like these should play an important factor in your final decision, think about what you personally want from a brokerage and then evaluate which brokerage(s) suit you best. Making a fast and rash decision may end up with you feeling dissatisfied in the long run, so why not get the decision right the first time.

4. Take a look at spreads, execution, and check for hidden costs.

By this I mean traders should ask around regarding the quality of order execution, spread size, whether the brokerage charges commissions or any other hidden costs. When you get seriously into Forex trading you will begin to realise that these factors are very important and can make a big difference to your Profit and Loss column in the long run. For instance a 1 pip difference in the spread can make a significant difference to your total profit and loss over the course of a year. Thinking about these things is certainly worth it and definitely pay off in the long run. I would always check for hidden costs, some brokerages for instance charge inactivity fees which can end up costing you a considerable amount if you plan on leaving an account inactive for a period of several months. On the other end of the spectrum some brokerages will pay you interest on funds deposited with them. These factors are often of the upmost to experienced traders, but many new traders forgot to take into account these very important factors due to a lack of real life trading experience.

5. Don't get taken in by offers

Many brokerages offer new depositors some pretty impressive bonuses, but I would suggest that new traders don't get taken in by these offers. Many offers come with Terms and Conditions which can make the bonuses very hard to get hold of, while there are some offers that are in fact pretty decent they still generally come with strings attached. Don't pick the brokerage with the most impressive offer; instead pick on the criteria outlined above. If the brokerage you end up choosing has a good offer all the better, if not at least you are picking the brokerage which suits your needs the best. Offers are nice bonus but try and not let them influence your ultimate decision. I have seen too many traders being taken in by an impressive offer only to end up disappointed in the end.

Hopefully the above tips help give you some guidance when it comes to picking the Forex brokerage that is right for you. Picking the best brokerage for you can often be a daunting task but it needn't be provided you make your choice with due diligence.

Ed Martin runs and writes for the Forex website The FX View, those interested in reading more posts written by him can visit the blog here.

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