Written by: by Panagiotis Charalampous, Head of Community Management of cTrader at Spotware
Selecting the right broker is one of the first and most important decisions a trader has to go through. There are hundreds of brokers out there, and making the best choice is not always so easy. One needs to consider several parameters and the selection process becomes a non-trivial task. As a result, there are also numerous articles that highlight what you should be aware of during the selection. In this article, I try to avoid repeating what has already been written and just add my personal tips to this process.
The first advice you will get when looking for a broker is to check the regulation. I also consider regulation the most important aspect to look for when scrutinizing a broker. You need to ensure your interests will be protected in case something goes wrong. Lack of regulation or weak regulation should be considered a red flag for any broker. You should always choose brokers regulated under reputable jurisdictions. On top of that, my personal advice is to prefer brokers that are geographically close or even based in the same country as you. If for example, you reside in the UK, choose an FCA regulated broker rather than an ASIC even though both regulatory bodies are respected equally. In the case something is messed up, it will be much easier to seek legal advice and push for legal procedures in your own country rather than abroad. You don’t want to have to travel abroad in case of disputes.
Tip: If the broker is local then it is easier to gather some insider information too. Make sure they have offices and that there are people working there. Look around for people you know that might be working there and find out how things are going.
Check Broker’s History
While a strong regulation might protect your interests, you do not really want to mess up with a broker that has a history of disputes in the first place. So it is wise to check your broker’s record before engaging in a relationship with them.
Tip: Go to Google and search your broker’s name alongside with relevant key terms like “fined”. You will be impressed by how many reputable brokers have legal and regulatory troubles.
Check the broker’s reviews in various reputable sites. Don’t stick to a simple star rating but read carefully why people are happy or not about a broker. See how the broker manages his online reputation and how bad reviews are managed and responded. Make your own judgement if bad reviews are based on solid arguments or if it is just defamation attempts or even unjustified claims by traders that lost money.
Tip: Post a fake review somewhere. See if they reply and if they care about customer feedback.
Check Trading Costs
Trading costs are also an important factor to consider. They could affect your strategy significantly, and even decide if your strategy is profitable or not. The tip here is to look behind the advertised costs. “Commissions from” and “Spreads from” don’t really say the truth. These are usually EUR/USD costs, but they might be very different for the instrument you want to trade, especially if it belongs to a different asset class.
Besides commissions and spreads, you should also check for other hidden costs like swaps and slippage. If you are a long term trader, swaps might significantly affect your positions, and if you are trading big volumes, slippage might cost you a lot.
Tip: Trade some big volumes on a demo account. Check if trades take depth of the market into account, and what the slippage is. Also monitor a few overnight positions. Check when the broker changes swaps and compare them with competitors.
Make sure that the deposit and withdrawal process is as fluent as possible. It is not enough to just have several deposit and withdrawal methods – the operations should also be executed on time. You don’t want to wonder why you cannot withdraw from your account, how many days will pass before you see the money in your bank account, or why the bank is blocking the transaction. Also, there will be cases, where you will need to deposit funds into your account immediately e.g. to avoid a stop out. You want this process to be as efficient as possible.
Tip: Before engaging into any trading with the broker, deposit and withdraw an amount to make sure the whole circle is working flawlessly.
Support is another critical factor to consider. While a broker might claim to provide 24/7 support over many languages and different channels, the most important aspect is to be supported by knowledgeable staff. It doesn’t really matter if the person that supports you responds immediately in your language, if all that you get is a canned reply that does not resolve your issue or isn’t of much help anyway.
Tip: Check on the broker’s support with some trap questions for which you know the answers. Evaluate the quality of responses.
The technology your broker offers, e.g. trading platform, client area, payment methods, etc. is also of major importance. You should always engage with a broker that offers a technology you trust and understand.
Tip: If a broker’s technology seems inferior to the competition e.g. an unknown trading platform, think twice before opening an account. Disputes over technology glitches are not easy to handle, and you do not really want to go through them in the first place.
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