1. Is broker regulated? If so, in which country is it regulated?
Not all countries regulate the same way, nor do they have the same regulatory environment and requirements when it comes to financial registration. Therefore, it is important for any investor/trader to choose a foreign exchange broker that s based in a country where their activities are monitored by a regulatory agency. It is also important to know if the broker or dealer is regulated in an on- or off-shore country, as the latter can be more liberal with registration requirements.
Countries with dedicated regulatory agencies include, USA, UK, Eurozone, Japan, Australia and Switzerland.
All types of traders need to be aware of their broker or dealer’s regulatory status and have a clear understanding of the regulatory body that governs forex activity where the selected broker or dealer does business.
2. How reliable is the broker’s trading platform?
There are mainly 2 types of platform, desktop or web base (java application). You should consider your hardware requirement could run the application smoothly.
In terms of trading, the application should be stable on all type of market include during major news event. Stability of the platform is the priority of all traders. Some platform could freeze or crash during major news. The platform also should be user friendly for you to place order, check your account and trades easily.
You could easily download the platform of any broker and open a demo account to check use the platform before investing real money. The challenge is demo account often hard to detect stability of the platform. Hence combination of regulation of the broker should provide a rough guide of the broker or platform is stable.
3. What is the business nature of the broker?
There are 3 major type of business nature of a broker.
Market Maker – B Book
When the broker is a market maker (dealing desk), is the traditional way of bank or broker operate. The market maker interacts with other market makers banks to manage their global FX positions/risk. Each market maker offers a slightly different price in a particular currency pair based on their global FX book.
STP (Straight Through Processing) – A Book
A STP (Non-Dealing desk) broker is your order will be sent to bank for execution. Broker generally charges a fee for this service.
ECN (Electronic Communication Network)
An ECN broker is similar to STP broker where they send out your order. However, ECN broker connect to a pool where various market maker or bank. The broker will display to the best bid and ask price from various sources (we call that Liquidity Provider – LPs) to the trader
It is important to point out that an ECN usually shows the volume available for trading each bid and offer, so the trader knows what maximum trade can be placed. ECN volume is only a reflection of what is available on any one ECN, not in the overall market. The market maker still sets its volume based on its comfort with its liquidity at any one point in time. The market maker’s responsibility is to provide liquidity under all conditions to its customers.
4. Cost, Fee, and Commission Structure
Basically, there are 3 commissions structure used by Forex broker.
Charge commission base on your traded lot size
5. Leverage and margin call policy
In here you need to understand you broker margin call policy. In which level the broker will cut off your losing trade, some broker practice 10% some 20%. You also need to know the margin required to enter you trade for particular currency pair or commodity.
6. Account type
There are 3 types of account which commonly available:
You can trade a minimum of 1,000 unit where 1pip = $0.10
You can trade a minimum 10,000 unit where 1pip = $1.00
You can trade a minimum 100,000 unit where 1pip = $10.00
Some broker only has standard account that requires a larger deposit. Hence you want check what is the minimum deposit, method available for deposit and withdrawal.
7. Customer Support
Last but not least you should check the customer support to ensure they are able to solve your problem anytime when you needed. Some questions below you might help you to decide if their customer support is good.
Does it have support in your language?
Which medium is used to contact the help desk: email, chat, or can you speak by phone to a live person?