You may wonder if you really need a broker. The answer is yes. If you intend to day trade, then you must have a broker. And it doesn’t matter whether you are trading stocks, futures, forex, or options: unless you are a member of the exchange, you won’t be able to place your orders without a broker.
Stock-, futures-, and options-brokers are required to pass different tests in order to obtain their licenses. These tests ensure that the broker knows his business and will be able to support you if needed.
In most cases, brokers earn their money from commissions on sales. When you instruct your broker to buy or sell, they earn a set percentage of the transaction. Many brokers charge a flat ‘per transaction’ fee.
There are two types of brokers: full-service brokers and discount brokers.
Full-service brokers can usually offer more types of investments, may provide you with investment advice, and are usually paid in commissions.
Discount brokers typically do not offer any advice or research; they just do as you ask them to do, without all of the bells and whistles.
So, the biggest decision you must make when it come to brokers is whether you want a full-service broker or a discount broker.
If you are new to investing, you may need to go with a full-service broker in order to ensure that you are making wise investments. They can offer you the skills that you lack at this point. However, if you are already knowledgeable about the market you want to trade, then all you really need is a discount broker to make your trades for you.
Selecting the right broker can be a tedious battle for most traders. There are more than a hundred online brokers today and additional choices are becoming available all the time.
You’ll need to double your diligence if you’re looking for a forex trading broker. Since the foreign exchange market is worth trillions of dollars, it offers lucrative opportunities for brokers to set up their firms online. And since the foreign exchange market is decentralized, it can be hard to identify quality brokers amongst all of the unscrupulous brokers with fraudulent practices.
Your chances of finding an honest and reliable forex trading broker will dramatically increase if you use the following guidelines:
– Always request references that you can actually speak with.
– Do a check with the local regulatory agencies and make sure that the forex trading broker is registered. For U.S.-based brokers, see if they are registered as Futures Commission Merchants (FCM) with the Commodity Futures Trading Commission (CFTC), and registered with the National Futures Association (NFA).
– Compare the account details, such as the minimum deposit required, leverage, spreads, and so on. Ask them specifically if commissions are chargeable, lot fees, etc. This is to ensure that you do not incur hidden costs. Some sneaky brokers will deliberately give you an impression that they are the cheapest to use, but in actual fact, they’ll hit you where it hurts when it comes to hidden charges.
– The trading platform needs to be user-friendly. Many traders, especially first-timers, find it challenging to navigate trading software. Just making sense of the charts and currency prices can be a challenge. So, if there are demo accounts, try them.
These are just a few recommendations, but they should help immensely. Remember, this broker or brokerage is going to be your teammate when it comes to making you a wealthy person. So be picky and be cautious.