How to Choose the Best Broker for Your Trading Strategy

 

Hello there, this is tradingpedia.com and this video deals with how to choose the best broker for your trading strategy. Choosing a broker is important of a trading strategy, regardless of the fact that many traders do not quite care about this process.

Five-Digit Account

The first thing to consider is a five-digit account. It refers to the number of digits in a quote as these examples show. This is important because brokers that do not offer five-digit accounts in the 21st century are brokers with bad intentions. On a four-digit account the broker will requote you many times and by the time that it will execute your order, the market already traveled. So, if you have a trading strategy based on short-term entries and exits, that strategy will suffer.

Look for ECN or STP Accounts

Check for the broker to offer ECN or STP accounts or technology. They stand for Electronic Communications Network and Straight-Through Processing. Basically, it is a bit more expensive for the trader, but the broker guarantees that it will fill an order when there is a market.

On the FX market luckily there is always a market in the sense that there is always someone willing to take the other side of the trade, so you won’t have a problem. But ECN makes sure that there is at least one serious liquidity provider and the broker directs the orders to the market and are not kept in-house.

Segregation of Funds

Make sure that the broker offers segregation of funds. It means that the brokerage house as a business cannot touch the funds deposited. If you trade for a living and invest in the currency market with a long-term horizon, the funds are segregated usually at a custodial bank and have nothing to do with the business the broker runs. They are not used for salaries, rent, servers, etc., but kept separately and that is good in the case the broker has some issues.

Choose a Regulated Broker

Make sure the broker is regulated. This is a no-brainer, as you don’t want to trade with a broker that is not regulated. How to make sure a license exists? First, check on the website, but also inquire with the authority and see if that is true and the license is not expired. In the case that the broker suffers from bankruptcy, regulation helps.

In 2015 when the Swiss National Bank dropped the EURCHF peg from 1.20 it caught brokers and traders by surprise. Some brokers were busted and the financial authority intervened, as it was the case with the Alpari broker in the United Kingdom. The authority intervened contacted all clients and explained the process, the steps to follow, and the funds will be returned. If the broker was not regulated, that would not have happened.

Hidden Fees

Check for hidden fees. They refer to costs that are not normal or hidden in the sense that the broker may advertise that it charges only variable spreads and has no commissions. That may be true, but it may have the spreads wider than the average broker. No broker runs a charity but earns some fees. A broker also may charge a markup on deposits/withdrawals.

Demo Account

Also, check the demo account before opening and fund a live account. This is important because the currency market has periods when it moves fast and periods when it consolidates. For instance, today is the Labor Day holiday in the United States and the market is quite slow. As you can see the EURUSD barely moves and the more we go into the US time zone, the quitter the market becomes. When this happens it is difficult to test the platform. If you have a scalping strategy, slippage may affect the profits during volatile times created by economic reports and spreads may widen. But if you use a demo account, you know what to expect.

Conclusion

These are the main points to consider. Of course that we can add more to find the perfect broker. But if you pay attention to these, then keep in mind that any good broker is not interested in its clients losing money. A true broker earns from fees and it is not after the funds deposited in the trading account because it cannot touch those funds. But a true broker will like more customers, active traders, and the more active traders the broker has, the more striving the business is.

Thank you for being here. Bye, bye.