10 Steps Traders Should Take When Choosing a Broker
The steps for choosing a broker may vary from person to person depending on their unique needs, styles, and level of acceptable risk, including the geographical locations involved. However, there are several aspects of the due diligence process that we will highlight here in order to provide traders with some universal advice on selecting brokers, most of which apply regardless of objectives and personal preferences.
- Education and free demo account. Broker provides some kind of education for their clients in the form of books, articles, webinars, youtube video or one-on-one help. They offer demo accounts for software especially if you are not familiar with their trading platform. Some companies do more and offer a multistep education to make sure their clients understand the trading before they put real money on the market
- They never offer high returns along with low risks. Neither they guarantee your money.
- They don’t offer employment opportunity in Forex Trading while asking you to pay for the courses to become their employee.
- It’s a good sign if the company is regulated or is a member of self-regulated and well known organization in the industry like Financial Commission.
- Make sure that company has an office where you can come and see real people working.
- Transparent organizational structure and management. This information should be obtainable if not already listed on the broker’s website,
- Partnerships with reputable service and liquidity providers
- Easily accessible legal documents, such as agreements and policies
- Same legal entities should be used for trading and financial transactions
- Make sure that major terms of business are properly describe, so you understand the following:
- Margin policy for weekdays, weekends, news releases and locked positions.
- Order Execution and pricing during news releases (volatile market conditions,etc).
- Slippage and Re-Quotes
- Stop Out and Forced Liquidation policies
- Customer Account deposit & withdrawal policies
- Incentive and bonus policies
- Rollover policy
- What steps to take in case of technical problems
- Where and how can you dispute financial or trading transactions
Putting It All Together:
As described earlier in the list of items to look for when choosing a broker, since the process is not an exact science and will vary for each trader and depending on the broker they are considering, the important thing to remember is to put all the information together and see the whole picture.
If there are more bad signs than good, that could be a cause for either more due diligence or looking elsewhere. Whereas, if the positive attributes outweigh any perceived risks, then the trader will need to discern based on their personal judgment and seek counsel or guidance if needed.
The Financial Commission aims to educate traders in order to help improve their trading experience by arming them with information that they can use when making informed decisions such as choosing a broker, and believe that using the steps described in the above list is an example of one such approach.