Picking the Right Broker for You
Picking the right broker for you can be a daunting task, especially if you are not clear and what you should be looking for. On the whole, finding a good broker isn’t too hard when you know what you are looking for.
However, the question begs: why do you need a broker in the first place?
This is a reasonable question. The reason why you need a broker in order to enter the FOREX market is that you, as an individual, are not officially permitted to trade in the FOREX market unless you have the backing of a licensed institution. In this case, the brokerage firms that offer access to their platforms are the institutions that will back your trading activity.
In a manner of speaking, it’s like you’re playing your home games in someone else’s stadium. It’s still your home turf even though you don’t actually own the stadium. In this regard, the access you are granted to the platform enables you to place trades for yourself. All you pay to the brokerage firm is the right to use their platform.
So, you aren’t hiring a broker to manage your portfolio. What you are doing is simply “paying to play.” A good way of looking at it is by comparing it to poker. When you play professional poker, you need to buy your way into the game. This is in addition to the blind you have to pay for each hand. Similarly, FOREX platforms will charge you for the access to enter the platform. Once you are in, then you can place your trades with the trading capital you have at your disposal. This will then enable you to make a profit.
The best part of this type of setup is that the profits you make are yours. You don’t have to pay a commission to some broker for their “expertise.” By reading this book, among other publications out there, you will gain the same type of knowledge that brokers have. Therefore, you won’t have to waste your money by paying commissions. That goes straight into your pocket.
As such, there are some important points to consider when looking for a brokerage firm that can grant you access to the FOREX market.
- Membership fees. All FOREX trading platforms will charge you some kind of membership fee. This fee is generally used to keep the platform running. Thus, the price you pay is what basically keeps the lights on. Regular brokerage firms will charge you a flat fee for the use of the platform. This can either be an annual fee or a recurring monthly payment. In other cases, discount brokers may charge you a one-time signup fee. However, they’ll get you on the back end with their fees per trade. When you opt for a full-service broker, you’ll pay a higher upfront fee, but you’ll get a great analytics package that offsets the cost of the platform itself. Also, depending on the type of platform, you get algorithmic trading, expert advice, and even the opportunity to do copy-cat trading. Most discount brokers simply offer you access to the platform, and that’s it.
- Fees per trade. When you conduct individual trades, you generally end up paying a fee per trade. In some cases, you may end up paying a couple of bucks on each trade regardless of the size of the position. In other cases, you pay pennies per trade. The best way to maximize your value when it comes to fees per trade is to purchase bundles. Most platforms offer bundle packs like 10 trades for $1.99. These offer the most value as they allow you to control your expenses. If you go on a trade-by-trade basis, you’ll find it hard to keep tabs on the amount of money you are paying per trade. So, it’s best to see if you can lock in the price you pay for each trade you place.
- Reputation. This is one of the most important aspects to consider. Sure, you might be tempted by the neat look offered by Joe’s Trading Platform. But if you don’t have any idea of who they are, you might be walking into a scam. The best trading platforms have a good reputation backing them. In addition, you’ll find plenty of independent reviews on them by regular folks. You can even call up the Better Business Bureau in your area and get information on the parent company. Legit companies are always in the business of transparency as they know how valuable a good reputation can be.
- Free demo account. This is a deal-breaker. If a platform does not offer you a free demo account, then it’s better if you pass on them, at least in the early going. When you don’t have access to the free demo version, then you will be playing for real right from the start. This can be dangerous, particularly when you don’t have a lot of experience. So, a demo account will always be your best bet. Most platforms will require a credit card number or some other type of payment option though they won’t bill you until after the trial period has ended. Take full advantage of this time as you are playing with house money. Therefore, you can afford to make a few mistakes. That way, you know what to look out for when you live with the real thing.
Please keep these points in mind as they will save you a lot of headaches along the way. In particular, ensuring that you are dealing with a reputable company is the most important thing you can do to protect yourself from unnecessary risk.