What Is The Best Trading Brokerage? - 2021 Full Guide

forex trading Jan 10, 2021
forex, forex trading, forex trader, forex factory, forex market, forex trading for beginners, forex brokers, forex market hours

“What Is The Best Trading Brokerage?” We hear this question quite a lot. Specifically from people interested in trading the Forex markets. The answer though is not so simple. The best broker for one person might be X, but for others, it could be Y. Picking a brokerage is highly dependent on the needs that you have. 

Let’s go through a 4-step checklist to help you pick the best broker for YOU.

Step 1:

The first thing that we should check for is regulation. As an investor, our first step to protect our capital is to pick a well-established and trusted broker. In order to achieve that, we first need to find a regulated broker. Even though most times the regulated brokers provide way less leverage compared to a non-regulated one, that's the price we have to pay in order to achieve security. The other reason why we should only use regulated brokers is, manipulation. An unregulated broker can easily run price against you, trigger stop losses or miss your entries for the sake of taking your capital. Unlike those brokerages, the regulated ones can’t get away with such actions without further consequences. For example, let's take the FXCM case in the United States. In 2014 the CFTC (U.S. regulator) fined FXCM with a total of $14 million for market manipulation (this includes stop-hunts and price manipulation). Alongside the fines, they were shut down and banned from operating in the United States. From that case I hope you realize why we should only deal with a trusted regulated broker.

There are many regulators around the globe, but since most brokers are situated in not more than 5 countries around the globe, we can consider 4 major regulators which are:

  • ASIC — Australian Securities and Investments Commission
  • CySec — Cyprus Securities and Exchange Commission
  • FCA — Financial Conduct Authority (United Kingdom)
  • CFTC — Commodities and Futures Trading Commission (United States)

From that list we can see that we have two European regulators, one Australian and one from the United States. The rules that they apply are very similar, but the thing we’re really interested in apart from regulations is leverage. Out of the four mentioned above, only the ASIC regulated brokers provide leverage of up to 1:500. The European and United States brokerages offer up to 1:30, which is significantly lower than the one offered by the ASIC regulated brokers. If you’re looking to play with smaller capital the ASIC regulated brokerages are the way to go. Keep in mind that leverage is not your friend unless you know how to play with it. 

The last thing that we will cover in this section is how to check if the broker is really regulated. Most brokerages will keep that information in the general section. Every broker registered under a regulator will have a license number. That license number can be checked on the site of the respective regulator. Even if you see a license number, don’t blindly believe it until you can clarify that license is valid. There are many shady brokerages that write a random number claiming that they’re regulated, but in reality they’re not, and this is a significant risk for your capital. Always double check the validity of their license, before you take the first step.

Step 2:

The second step is to determine what you’re going to trade. You should pick your broker based on what you’re going to trade. The brokers are either with commission or without commission. Usually when the brokerage is with commission per trade, the spread is usually a lot lower. While brokers without commission, you don’t pay anything and the spread is higher. From my experience there’s literally no difference between both. The no commission approach is more a marketing trick than a real thing. To prove that let’s take a look at this example. We are going to trade EUR/USD. On the commission broker we have a spread of 0.2 pips and commission of 4 cents, while on the non commission broker we have 0.6 pips spread and no commission for the trade. The lot size that we’re going to use is 0.01. On the commission brokerage, when we open the trade we will be at minus 6 cents, because the 0.01 lot size is 10 cents per pip, therefore from the spread we will have 2 cents and 4 cents from the commission. On the no commission broker we have only spread of 0.6 pips which on 0.01 lot size is exactly the same number which is 6 cents. So as you can see, this difference is only a marketing trick by the brokers to make you feel you’re paying less, while in reality that is not true.

In essence, we should always look at the best spreads so we can maximize our profit. At the start of this section I said that we’ll pick based on what we’re going to trade, and that’s what we should always do. The different brokerages offer different spreads on the financial instruments that we’re going to trade and that’s crucial. On one brokerage the spread on your financial instrument could be 0.2 pips and on another 0.8 pips, which makes a huge difference. One brokerage could offer good spreads overall and a way worse spread on what you’re willing to trade. Should you pick that broker because it offers overall good spreads? If the financial instrument that you’re going to trade is not at the level that you want it, then no, you should not.

Step 3:

The third step is to carefully analyze different parameters of the brokerage. Parameters like margin call, leverage, liquidation, contract size of the financial instrument, and required margin per 1 lot are some of the many parameters you should be analyzing. Since those parameters are completely different on every single brokerage, you should not blindly think you know everything. If the margin call on your old brokerage is 15% and on your new broker is 20%, you will get margin-called without even realizing it. Such parameters should always be checked, before you start your journey as a trader. 

Step 4:

The last step is to check what kind of deposit/withdrawal methods are provided by the brokerage. You should look for methods that are both easy to use and cheap to operate when you’re moving your capital. You don’t need big fees if you’re going to move smaller capital. 

E.g. If you’re going to withdraw $500 and the wire transfer is $25, that’s a bit too much. Most brokerages offer the most common methods like VISA, Mastercard and Bitcoin, so it shouldn’t be much trouble to process everything.

With everything covered, I hope you now realize why picking a brokerage is a thing that we should not do with an easy hand. Many people underestimate this process and suffer in the process. Many have lost their capital from fraud, fake price movement and had trouble withdrawing from their brokerage because they did not think about that when picking it.

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