Now that you’ve decided to embark on your investment journey, it’s time to pick a broker or trading platform with which to conduct your investments through. There will be a large number of options to choose from, with most offering some kind of incentive to register, from deposit bonuses to low trading prices designed to attract customers. While the promise of monetary benefits might be a significant draw, what is more important is having a regulated, reliable broker.
We won’t sugar-coat it. Forex trading is a risky (but potentially rewarding!) business. Since Contracts for Differences (CFDs) are traded Over-the-Counter (OTC), they do not have the same regulatory framework that the major exchanges do. Having a reputable broker will remove any uncertainty about your funds, as well as provide an invaluable support system for your trading. Here’s why it’s important to have a reliable broker:
Your money is safe
Even if you aren’t trading large amounts of currency with every position, your initial deposit into the platform will still be a significant amount. A reputable broker will ensure your money is secure through several methods, like placing clients’ funds into a segregated bank account, separate from the business’ working capital.
This prevents misuse of client money, and, in the uncommon event that the business undergoes liquidation, client money can be returned at any time without loss.
Going one step further, most regulated brokers will also offer other safeguards like negative balance protection.
Opportunity cost is minimised
A reputable broker makes its profits on customer loyalty (rather than unusually) high spreads or predatory practices) and will be motivated to provide the best experience for its customers. This means putting in the resources to make any platforms they have easy to use, as well as offering responsive and helpful customer service.
Also important is that your liquidity expectations are met. A good broker will require minimal hassle – but do its due diligence in confirming your identity – when it comes to withdrawing or transferring your funds. All these reduce opportunity costs in trading, where additional seconds spend trying to navigate an interface or hours spent waiting for a withdrawal might mean the difference between profit and loss.
You get Transparency
A reliable broker will not purposely obscure information. Having clear, detailed information about commissions, spreads, and other trading costs like withdrawal fees will prevent unpleasant surprises during the course of your trading. Your broker should also be transparent about the swap rates, margins and leverages it offers.