How to Choose a Regulated Forex Broker?
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Before you start practicing on the market, you need a broker. And that is not a person like many people believe. The brokers are companies that we use to access the market.
They offer the trading platforms which we use to buy and sell different assets and to participate in the market.
So how does it work?
We select a broker, and we can open a Demo account or a live account. The demo account means that we will be using virtual money. It is free. There is nothing to lose.
And if you are a beginner, it is highly recommendable to use the Demo account before risking real money. I still use Demo accounts to test some new strategies and trading systems.
The second option is to fund a live account, which means that you have to deposit a certain amount of money with the broker so that you can buy and sell different assets.
This is with real money. So choosing the right broker is very important. And there are thousands of brokers around the world, and sometimes it is not an easy task to choose a good regulated forex broker.
What do you need to look for in a broker?
First, make sure you use a regulated Forex broker.
Some of the strictest regulations are the Commodities Futures Trade Commission (CFTC) in the US, the Financial Conduct Authority (FCA) in the UK, the Swiss Financial Market Supervisory Authority (FINMA) in Switzerland.
I will attach a PDF to this lecture with more information about these regulatory bodies because it is essential to use a regulated company.
Secondly, low costs.
There are 3 major costs that we pay to the Forex brokers when we trade. The spread - so when we buy, we always buy at a higher price, which is the Ask price.
When we sell, we use the Bid price, which is the lower price. The difference between the 2 is called the spread. So when you are selecting a broker, make sure to check out the spreads for the major currency pairs like EURUSD, GBPUSD, USDJPY, the spread should be below 1 pip.
The second cost is the swap. We pay a swap to the broker if our trades stay open overnight. So if the broker transfers the position to the next day, we will have to pay a swap.
But pay attention here. Sometimes, the swap might be positive, and we might benefit from holding the positions overnight.
And thirdly, with some brokers, we pay commission. This is usually with brokers that have low spreads. And to give you an idea, normally, a commission is between $5 to $10 for 1 lot traded.
If your broker charges more, you should consider a different broker. It is recommendable to open Demo accounts with a few brokers and compare the costs.
This way, you can select one that will be cheaper for you to trade with. Because obviously, the lower the costs, the higher the profits.
Also, it is not a bad idea to look for reviews on the regulated Forex broker that you have selected before depositing real money.
And on our website at EAForexAcademy, we have a brokers page where you can find more tips and examples of a regulated Forex broker:
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