You already know that you can trade currencies, gold and many other things on Forex. You must have an open account to do so.
How to choose the best broker? – This is the dilemma every beginner in the foreign exchange market faces. There are many brokers, so the choice is not easy. The most important thing is to choose a reliable broker and adapt it to your capital and playing style. In this article we will try to help you choose the right broker. However to start with – a huge dose of knowledge!
3 TYPES OF BROKERS IN THE FOREX MARKET
When choosing the best broker, you need to know how it works. Learn about the pros and cons of different types of brokers:
1. Market Maker – An MM broker usually does not direct their clients’ orders to the interbank forex market. As the name “Market Maker” suggests, such a broker creates his own Forex market .
This type of broker incurs losses when a client makes a profit, which leads to a conflict of interest. Consequently, many MM brokers prohibit or prevent certain trades. For this reason, brokers of this type do not have a good reputation, but of course there are exceptions. Players who trade large amounts of money may have problems with MM brokers. For beginners and small players MM broker has many advantages and is a good choice. Very often MM brokers offer large cash bonuses to get you started.
2. Electronic Communication Network – ECN brokers redirect customer orders directly to the open market Forex, where the market participants are private and public banking institutions, other brokers, companies, financial institutions, investment firms and individual investors. These types of brokers allow all types of transactions and guarantee anonymous trading.
3. Direct Processing (STP) – these types of brokers route all transactions directly to so-called liquidity providers. Most often these are investment banks, other forex brokers, investment and hedge funds. STP brokers allow you to enter the real foreign exchange market without incurring large financial costs.
CHOOSE THE BEST BROKER
There is no best broker for everyone. It’s true. You already know the advantages and disadvantages of each type of broker. You should start your search for a broker by analyzing your own situation and needs. Answer the following questions for yourself:
1. How much capital do you want to spend on the game?
Allocate an amount to an investment that you can lose. This is the healthiest approach to forex trading. Forex is a demanding market. Never invest all of your savings.
Keep your money safe
Check if the broker is regulated by European financial supervision institutions. It’s also important whether he separates money deposited by clients from his own funds. In our ranking that we mentioned, the security criterion plays the biggest role.
If you don’t have a lot of money, you need to figure out what is the smallest amount you can start speculating on.
Some brokers, despite offering a minimum deposit such as $200, allow the smallest transactions. This factor doesn’t require much attention because all brokers have almost the same minimum transaction threshold for small players.
For larger deposits, brokers offer “VIP” or “Premium” accounts. They have many advantages, such as less spread, personalized service, and customized training packages. Some brokers, even though they are MM, offer ECN rules for VIP accounts, meaning orders go directly to the open market.
2. How much time will I spend on Forex?
How much time per day can you spend analyzing the market and tracking bets? Trading is a very time consuming activity. By not researching the market and not having important information that will determine your bets, you are limiting your potential profits.
If you have time to analyze the market – intraday trading and scalping. For this reason, it is worth looking for a broker with a low spread and a small transaction fee.
Lack of time
If you can’t devote enough time to Forex trading, long-term investing is the most appropriate option. In this case, it is worth checking the costs of rolling back a position, i.e. SWAP points (costs of holding a position the next day) are a way for a broker to charge extra commission.
Many traders who do not hold a position for more than one day use a “Carry trade” strategy. He buys currencies of countries with higher interest rates. In this case, it specifies currencies of countries with lower interest rates. In this case, brokers pay us extra interest daily to hold positions, which is the result of the interest rate differential.
Another way to trade with time constraints is to copy trades of other players, so-called social trading. If you decide to take this step too, first test the signals generated by other players on a demo account.
Not sure how much time you can spend on trading? If so, make sure that the broker doesn’t charge any extra fees if you don’t have any open positions for a long time.