Choosing the right broker

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Choosing the right broker

Post  ilearn2t on Fri Dec 23, 2011 12:28 am

Mostly a Forex broker is associated with a bank or some FX trading company or online site. While it isn’t hard to find a broker for trading in Forex market what matters is the kind of broker you pick for your Forex trade.

In the USA a qualified Forex broker is required to register with FCM (Futures Commission Merchant) and synchronized by CFTC (Commodity Futures Trading Commission) and a NFA member. The CFTC and NFA were made to protect the public against fraud, scam, and manipulation trade practices.

If a broker is registered in United Kingdom, registration information can be found on UK FSA (Financial Services Authority) website.

Swiss brokers are regulated by the Swiss Federal Department of Finance (FDF). Using a regulated broker also protects investors because they’re able to dispute resolutions.
The department is headquartered in Bern and is headed by a member of the Swiss Federal Council, Switzerland's finance minister.

A broker registered in Australia, do so under the (ASIC).
Australian Securities & Investments Commission is an independent Australian government body that acts as Australia's corporate regulator. ASIC's role is to enforce and regulate company and financial services laws to protect Australian consumers, investors and creditors.

The type of registered brokers above usually require a larger initial deposit.

Not all brokers are registered, for one reason or another, so investing in these brokers become a bigger risk, so small deposits and quick withdrawals would be the best option, never fall into the trap of "they paid him or her" or "they paid me last time" so I'll invest in bigger amounts. Many "Newbies" prefer to begin their careers by risking very small amounts which leads them to seek the broker offering the lowest initial deposit requirement naturally. This reasoning certainly has its merits, but the initial deposit requirement should in fact be one of the last considerations in choosing the best broker for you, unless you really have a very small amount of capital that you want to risk for forex trading.
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Choosing the right broker

Post  fxwalla on Fri Jan 27, 2012 3:38 pm

I guess some of the key issues one would look at would be:

1. Is the broker a market-maker, STP or ECN type?
2. Does he allow flexible lots - I mean can you determine the size of your trade according to your risk preference?
3. Is there any restriction on the number of pips away you could place a stop loss?
4. What are the order types the platform offers?
5. What are the instruments offered?
6. Account minimum deposit required
7. Amount of leverage offered
8. Whether scalping and EA's are allowed
9. Whether properly registered with regulatory authorities, and client funds are segregated.
10. Research and charting facilities.
11. Reputation on internet forums.

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Re: Choosing the right broker

Post  ilearn2t on Fri Jan 27, 2012 8:38 pm

Hello fxwalla

Welcome to the forum. Thanks for your useful information on this subject.  thumbsup

Most foreign exchange trading firms are market makers and so are many banks. Market maker (MM) can be seen as a simulated type of broker because it doesn’t reflect the market directly. Each market maker competes for customer order flow by displaying buy and sell quotations which are similar to what the market displays. Any order you enter is processed internally and never goes out to the market. Once an order is received, the market maker immediately sells from its own inventory or seeks an offsetting order. This process takes place in mere seconds.

Straight Through Processing (STP): This type of broker typically routes some or all of your orders directly to the market. Some brokers claim they are STP while they are actually MM, you can never tell for sure and sometimes they do a bit of both, forex brokers that use (STP) tend to have a lower error rate and can settle deals faster, thereby reducing settlement risk.

Electronic Communications Network(ECN): Is the only type of a broker that lets you gain access to the market. So a true ECN broker lets you see the actual prices and display the order in the market. You trade with other traders and financial institutions but not against your broker.

It is important to know how these different types of broker operate in order to figure out which one would be best for your forex trading career.

Good luck
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