The most regrettable decision many traders will ever make isn’t about a trade at all; it’s selecting what turns out to be a bad or unscrupulous forex broker. And, while forex trading has come a long ways from the old days of minimal regulation, many traders have been burned by a forex broker before…perhaps you’re even one of them?
Now, some traders are quick to blame the market or their forex broker for their own shortcomings, things like a failed strategy, poor execution, or a general lack of understanding about the markets and trading, but the fact is that sometimes, a forex broker could really be at fault. So if you have any doubts about whether your forex broker treats you fairly, or are still leery from a bad broker experience in the past, here are five (5) key questions that’ll help you determine whether your capital—and trading career—is in the proper hands.
You should be able to tell a lot about a forex broker just by visiting its Web site. First and foremost, is it registered with the proper governing bodies that regulate trade in your respective country or locale? And is the Web site secured and deposit and account information encrypted and protected using reputable software like VeriSign or SSL?
In addition, perform a Web or Google search for that forex broker and examine the results. Are there any outstanding sanctions or legal judgments against it, and is the customer feedback generally favorable?
Keep in mind that there will most always be disgruntled traders, so take some negative feedback in stride. However, if you can’t easily find a broker’s registration credentials, or if your thorough investigation raises questions about its legal track record, it’s best to move on to one of the many other available broker options out there.
Just as your trading strategy must match your unique goals, risk profile, and experience level, so, too, should your forex broker. For starters, can you open a small account and trade minimal leverage at first? Can you then build up to larger and more complex positions with time and experience, all the while getting personalized attention and service? Don’t settle for a high initial deposit or a lack of flexibility. Your forex broker should cater to your needs, not the other way around.
Perhaps the most important consideration when choosing a forex broker is rates and commission structure. Make sure you know what each broker is promising, and then hold them to it. For example, do they guarantee low, fixed costs that won’t change according to volatility or market conditions? Will you get a tight spread, are there any hidden costs or commissions, and is trader-friendly reporting available to help you monitor your positions for slippage?
It’s also important to know if your forex broker is operating as a market maker or ECN, and if they are the one taking the other side of your trade? That will help you recognize whether the broker wins when you lose, or just gets paid a commission whenever you execute a trade. While every forex broker has goals that aren’t entirely in line with yours, transparency will help you understand your broker arrangement and make sure the deck isn’t being further stacked against you as a trader.
Here’s what could be the biggest “red flag” of all about a forex broker: Do they respond quickly and enable you to withdraw funds from your account on demand? All will make it easy to deposit money, but if your Google search yields complaints from clients who had difficulty withdrawing money, make it your mission to find out why before depositing any of your own capital with that broker in question.
Pay close attention to introductory incentives and contingencies as well. Many brokers offer “free,” cash bonuses for new accounts, but because of it, the details about how—or even if—you can withdraw funds are often hidden in the fine print. Read it and be sure you understand how your money will be held before depositing, and if you have questions, here’s your primary course of action:
The digital age notwithstanding, and even if you work with an “online” forex broker, you should still be able to speak to a real, live person anytime you want…especially during market hours! So does your broker have physical office locations, and are well-trained, helpful staff members standing by to take your calls and Emails?
Especially if you have questions about deposits, transparency, or regulatory issues, call and see if you are able to speak to a real person, and if you receive clear, satisfactory answers to your questions. Test a broker’s standard for service in advance. You have a right to expect proper, attentive customer service, and any forex broker that doesn’t have professional staff on hand to serve you and your account likely don’t deserve your business, and may be a shell or outright scam anyway!
We maintain relationships with a pair of preferred forex vendors, whose commitment to fairness, transparency, and service have earned our trust and recommendation. Find out more about those brokers here.