Evaluating A Forex Broker

For many people who may be considering forex trading for the first time, one of the benefits is that it’s considered to be a simpler process than, say, delving into the stock market. The ease of entry into the forex market is sometimes cited as one of its most alluring features. To an extent, this means you can set up an account to trade forex with a relatively small sum, particularly compared to other markets. But it also refers to the relative ease of setting up a portfolio.

The misconception, however, is that many interpret “ease of entry” to mean that they can simply go online and buy and sell currencies the way they might do when purchasing a commodity like gold or silver (or even Bitcoin). While some experienced forex traders would argue that trades can be executed in a more hassle-free manner than those in the stock market, it’s not as simple as logging onto a web platform and buying and selling assets. A reliable broker is still required to make forex trading work.

Naturally, this means that the first big step in becoming a successful forex trader is to identify a broker that will work for you. So below let’s take a brief look at some of the questions that must be asked when performing this evaluation.

Is the company stable?

This is a little bit of an overarching question, but it’s ultimately the most important one. Determining a broker’s stability basically means seeing how long it’s been in business, how much money it handles, how much cash it has on hand, and how large its client base is. These are all reasonable details to inquire about when choosing a forex broker, and the answers will give you a reasonable idea about the broker’s reliability and experience.

Is the company regulated?

Regulatory control of forex brokers can be complicated given that they may be dealing with traders from all over the world. In some cases, a single broker’s activity may comply with multiple regulators in different countries. But by gaining an understanding of how and where a broker is regulated, you can get a better idea of how they operate and what level of risk there might be in entrusting your capital with them.

How is pricing determined?

There are a few different methods by which a forex broker can determine pricing. Depending on the method used, traders may face restrictions regarding bid and ask prices determined by the broker rather than the market at large.

Are there restrictions on trades?

Not all trading restrictions come as a result of how a broker determines bid and ask prices. Some brokers have additional restrictions in place, based on the size of the company or simply how it chooses to operate. For instance, a smaller broker might have restrictions on how much leverage a trader can use while executing transactions.

What fees are involved?

Another perk that’s commonly pointed out with regard to forex trading (as opposed to stock trading) is that fees on transactions are generally lower. However, fees and commissions can and do differ between different brokers. Thus it’s important to get a grasp of what kind of extra costs you’ll be covering before you get started.

This is merely an outline to keep in mind, but generally speaking it’s wise to remember that some analysis is required when choosing a broker. Aspects of forex trading are simpler than other kinds of financial investment, but it’s still very important to know the company you’re working through.