There are many forex brokers, but not all brokers are created equal. Especially when it comes to the security of funds, we need to make sure that the broker lives up to expectations. In-depth consultation with brokers is the user's right, because investment is risky, and you must proceed with caution. If you do not get the answers to the following 15 questions, it is recommended to consider finding another broker:
1. When was the company established and operated?
2. How is the company's financial situation? Can I see the company's balance sheet? (Except that most brokers of listed companies will not show it to users)
3. What is the relationship between the company and a large reputable bank (liquidity provider)?
4. Who is providing the quotation? Large broker or liquidity provider, one or more banks?
5. What are the tradable varieties?
6. What are the functions of the platform?
7. How about the spread?
8. How about the security of funds? Are client funds securely segregated?
9. Are there any transaction restrictions?
10. Is scalping possible?
11. What account types are available?
12. Will the overnight interest be clearly marked?
13. Does the trading platform allow hedging (locking)?
14. What additional services can customers get?
There are too many brokers in the market, and there are more than 4,000 broker platforms registered on MT4 alone, including countless small platforms. The cooperation between traders and brokers is like talking about a beautiful relationship. We definitely want to find the one that suits us best in order to obtain the most satisfying experience. So why ask the above 15 questions? Let's listen to the editor.
1. Why is the size of the broker important?
Because the foreign exchange market is an over-the-counter market without a centralized venue, not every trader can get the same quality of quotations and order execution. The larger the trading volume and the stronger the financial resources, the better the quotations and the higher the quality of the execution order that such a broker can get from the big banks.
For retail foreign exchange brokers listed on the stock exchange, market capitalization is the most direct and effective way to judge the size of the company. Market capitalization is the share price (value) of a company as determined by investors. A small but profitable company may be worth more than a large but loss-making company.
Of course, we are not saying that small brokers are necessarily bad. It’s just that in most cases, the company’s large scale and strong background only enhance the advantages of the platform’s execution capabilities and quotations. A large-scale brokerage does bring many advantages, which is why many traders pay attention to working with a large-scale brokerage.
2. Who is executing your order?
Not all forex brokers quote in the same way, here are two ways of quoting:
1. No Dealer Desk (NDD): Many banks compete on price through foreign exchange brokers, so orders are executed by the banks themselves. This means that major news or economic events are not usually likely to limit trading, but this should be checked with the broker.
2. Dealer Desk (DD): Brokers price and execute your orders. In this case, the spread is sometimes fixed, that is, traditionally it is higher than the average floating spread. During the period of major news or economic events, it is the time when the transaction is the most active, so traders should pay more attention to the platform's restrictions on submitting orders.
3. Trading platform
All activities in online trading rely on trading software. For a safer trading experience and to minimize the intervention of brokers in transactions, traders should choose a platform with high automation and less manual intervention.
The most basic aspects of the trading platform include charting tools and technical indicators, servers, operation interfaces, slippage, language versions, requotes, whether to update regularly and fix bugs, etc. There is no doubt that novice traders will always prefer platforms that are clear and easy to use, while more professional traders will prefer platforms that are more comprehensive and technical.
4. Spread
1. Scalping strategy
Many traders prefer short-term scalping trading strategies, which also include placing orders when high spreads occur. The scalping strategy is easy for customers to make quick profits, but it will definitely make market makers lose money. So some brokers do not allow this strategy. Of course, the scalping strategy itself carries high risks.
If a trader is going to engage in scalping, then it is important to check which brokers allow this type of operation. If you're not sure, email or call the customer to ask. Day trading, swing trading or long-term traders can save this part of the worry.
2. Decimal value quotes
The quotations of major currency pairs are basically accurate to 4 decimal places, so 1 point is usually equivalent to 0.0001 or a base point. Forex brokers generally raise or lower quotes to the nearest point. There are also some brokers who now offer quotes in decimal point values. This way of quoting usually adds a decimal point, so the spread is usually tighter and more precise. Everyone needs to pay attention to this detail when trading.
5. Account Type
For new traders in the foreign exchange market, brokers who can accept deposits from smaller accounts are very "people-friendly". There are three types of accounts with forex brokers: micro, mini and standard. The micro account is the smallest, followed by the mini account, both of which can accept deposits of smaller funds, which is more beneficial to novice traders and traders who do not want to take too much risk. Of course, the income of this type of account may be relatively small, but because it allows small deposits, there is no need to worry about excessive losses, so this does not prevent it from gaining favor among traders with short trading periods and inexperience.
6. Overnight interest
Overnight interest refers to the fee that needs to be paid or obtained to convert a position that expires on the current day into a position that expires on the next trading day. Since the prices of the two currencies in the transaction fluctuate all the time, there are also differences in the exchange rates of the two fees, and the overnight interest fee that the trader needs to pay is calculated according to the exchange rate difference.
If the transaction is USD/CHF, then the overnight interest fee will be determined according to the exchange rate difference between Switzerland and the United States. Assuming that the exchange rate in Switzerland is 5% and the exchange rate in the United States is 4%, then this 1% difference is the overnight interest that traders need to pay.
Of course, many traders like "carry trade", this is something later. The article introducing the Swiss franc has been explained before, you can go out and turn left to learn more.
7. Hedging
Hedging is what we often call "locking positions". Hedging allows a trader to simultaneously hold a buy and a sell position in the same currency. If a trader is uncertain about the direction of the exchange rate, the most efficient way to trade is to find specific support and resistance levels. This approach allows traders to lock in price movements.
In 2009, the United States banned foreign exchange trading customers from establishing "hedging" positions in the same account. But most other countries do not have such regulations.
8. Customer Service
Reliable and timely customer service is very important, which can relieve customers' doubts and allow customers to trade with confidence. Most brokerages offer 24/7 online and telephone customer service, and foreign exchange trading is available 24 hours a day.
Summarize
When you ask your forex broker a question, do they answer clearly and sincerely, or do they make excuses? Some brokers' customer service is very kind when the customer opens an account, but the after-sales service is terrible. If they seem perfunctory, suggest another broker, there is no such thing as a grass in the world.
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