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In today’s episode, you’ll discover the 7 important things to look for when choosing a forex broker.
So listen to it now…
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Hey, hey, what’s up my friend?
In today’s episode, I want to talk about how to choose forex broker so you don’t get scammed.
Here’s the thing, I know many of you are new to trading and you’re worried about putting real money out there, “Who can I trust? What if the broker runs away with my money? What if the broker hunts my stop loss? What if the broker is unreliable? How do I choose a broker?”
So I want to share with you seven things to look for before you choose a forex broker.
1. Make sure your forex broker is regulated
If you want to know how to pick a forex broker…
One method is that you want to make sure that they are regulated in the appropriate countries.
The three countries that I look for are Singapore, Australia or the UK. The broker has to be regulated in one of these countries because I find that the regulations in these three countries are one of the best out there.
If it’s not in any of these three countries. I will usually just skip it and move on to something else. Call me biased, but I find these three countries run the finance industry strictly in terms of compliance.
I’m based in Singapore and I find that the Monetary Authority of Singapore does an excellent job in protecting the retail investors and traders.
So number one, make sure the broker is regulated in the appropriate countries.
2. Be aware of the markets your forex broker offers
I know most of you trade forex, but at the same time you’ll want to trade other markets as well, maybe stuff like oil, soybean oil, cocoa, orange juice, pork bellies, or whatsoever.
Many forex brokers simply offer you forex markets and maybe a few common commodities like oil and gold. But if you want more and to be trading all the exotic markets, then you have to make sure that a forex broker or that CFD broker offers more than just forex.
So, how to choose the best forex broker while also trading other markets?
You have two choices:
- find one that meets your needs.
- have two different brokers – one to trade exotic markets and another to trade forex.
Whatever the case is, be aware of the markets that your forex broker offers, not all forex brokers offer a similar number of markets.
3. Make sure your forex broker provides live support
In this time and age, communication is almost instantaneous. For any business day of the week, I expect live support with the broker to be available.
Whenever there’s an issue, I can just log on to the website and talk to someone and find out what’s the problem and how to rectify it.
I don’t want to be emailing because email is too slow.
Most brokers, if they’re legit, will offer live support and walk you through the issues that you might be facing.
Now, this is one major factor if you want to know how to choose the best forex broker.
4. Smooth withdrawal process
When I asked for a withdrawal, I want my money back as soon as possible.
I don’t wanna hear excuses from the broker like, “Oh, if you leave the money with us for another one more month, we will give you an additional $200 deposit bonus.”
If you hear excuses when you want to take out your money, then that’s a huge red flag.
When you want to withdraw your money, it should be done within two to three business days and you should get your money back soon, depending on the medium of the withdrawal.
But there should be no excuses. The money should come back to you ASAP.
5. Check the reviews
This is a little bit tricky because you’ve to understand that in the broking industry, or any competitive industry, it’s very common for competitors to smear one another. So they’ll go to these types of review platform and say bad stuff about their competitors.
As someone who is reading reviews, you’ve got to be smart about it. You’ve got to read between the lines.
I’ve got a few tips for you. When I read reviews, I find that the most genuine reviews are the ones that are long, in two to three paragraphs, because those are from people who are genuinely very happy or very frustrated with the broker.
The longer the review is the higher chance that is a real review. Because if it’s a fake review, it’s just one or two lines and that’s it, there’s nothing else that they can say because it is a not a genuine review.
If it’s a real review, they will spend paragraphs after paragraphs venting out their frustrations or their anger, whatsoever. And that’s how you separate no real and fake reviews.
When I look at reviews, I pay attention to two things:
First, I want to make sure that the broker I’m with doesn’t have any issues with withdrawal. Because if you read broker reviews and you find that most of the complaints are about people having difficulty withdrawing their money, that’s a red flag.
If people are having difficulty pulling out their money, then chances are, when you put money with that broker, your money is likely to get stuck.
If the review is about some superficial stuff like maybe just poor customer service or the people being rude and stuff like that, those are ones that would affect me too much.
The second thing I look for is traders saying that they are getting stopped hunted, or their spreads suddenly widen and they get stopped out for no reason.
If that’s a recurring theme, then that’s something I want to be careful of as well.
6. Transaction costs
If you’re a higher timeframe trader, transaction costs wouldn’t matter to you much because these days, the brokers’ spreads are relatively low.
But if let’s say you’re a scalper or a day trader, then yes, transaction costs would matter to you a lot. Because some brokers offer you a commission plus a tight spread of let’s say 0.1 or 0.2 pips.
And If you do the math, the commission that you pay plus that really small spread is cheaper than paying 1 or 2 pips fixed-spread without commission.
Let me give you an example. Let’s say hypothetically whenever you buy one standard lot you buy, there’s a $3 commission charged and when you sell let’s say there’s another $3.
And because you have this commission-based pricing tier, your spread is only let’s say 0.1 pips. If you do the math ($3 is 0.3 pips when you trade one standard lot):
0.3 pips + 0.3 pips + 0.1 pips = 0.7 pips
That’s 0.7 pips when you buy and sell, let’s say one lot EUR/USD.
But let’s say you go with another broker that offers you a 1 pip spread on EUR/USD, you can see that you’re paying 0.3 pips more than the other broker that offers a commission structure.
You’ve got to add up the total costs and see which one is cheaper or more expensive.
This matters especially if you’re a day trader trading 20, 30 times a day. All these little spreads add up to a significant amount after a few months.
7. How to protect yourself from a broker if something goes wrong
Let’s say you get stopped out of a trade that you otherwise shouldn’t have been stopped out of.
What you want to do to protect yourself is to screenshot the chart of the trade which got stopped out of.
Let’s say, this particular broker you’re with expanded the spread by 50 pips and you got stopped out, but when you look at the other platform, the spike didn’t occur.
You should screenshot both charts of the two different platforms, so you’ll have a case to argue with. Ask them, “Why am I getting stopped out on your platform, whereas the other platforms that I look at didn’t have a spike occurring.” Now you have a case.
If there isn’t any resolution, you can take it to social media. If things are legit, people want to help the underdog, so people would share your post for you. And that would help the broker to make things right for you because now they have a reputation at stake.
That’s one way you can go about it.
The other way is to go straight to the authority wherever the broker is regulated, like MAS and tell them the broker is not dealing with you fairly.
Brokers that are serious about a business will want to keep their license as they don’t want to risk losing a license over some someone’s complaint. They’ll do their best to fix things for you.
That’s how you can protect yourself if anything does go wrong.
With that said, I wish you good luck and good trading. I’ll talk to you soon.