I’ve Got Ninety Nine Problems But A Broker Ain’t One

Let’s be frank, the FX Market should have evolved over the past ten years to ensure that the levels of service, the compliance and the probity of all brokers are first class and beyond question. The only issue a retail trader should be concerned over is their edge being robust enough, thereby enhancing their profitability. The very last consideration a trader should have is concerns with regards to their broker’s integrity and yet as I browse the major trading forums this morning questions are being raised with regards to the overall integrity of a few brokers and sadly this is a repeating pattern on the various forums.

I recall being involved in a discussion and asking a complainant ‘how they came to choose their broker, what efforts they put into deciding they were the ‘right one’”? The answer was that they’d checked out a review on the forum, the adverts looked good and they got a free introductory balance of a couple of hundred euros if they deposited the same..hardly a thorough examination, but to be fair that’s as far as most retail traders employ due diligence before transferring their hard earned (or hard saved) money to their broker.

There is undeniably a pattern to the complaints; the complete novice or inexperienced trader may call foul if they experience a spike at news events. They may question an order fill if the trade has experienced slippage. They may be adamant that their hundred pip stop was hit at 99 pips, or blown through to close at 105. They may question why they’re being quoted 1 pip spread but constantly getting filled at 2 pips? These ‘problems’ aside, (that generally go hand in hand with inexperience and are a normal part of trading) what qualities should a retail trader look for in their broker to ensure they’re getting the best?

Naturally you’d expect any reputable commentator or market analyst to state that you have to choose a pure ECN broker such as FXCC, we’ve discussed this aspect before many times and there really is no alternative. But over and above that critical success factor to your trading what should you look for in a broker? This is a highly personalised business, it isn’t a one size fits all model, therefore you should take time out to conduct thorough research to ensure you’re getting the best choice available for you.

A good starting point would be to create a list of your broker feature needs, a tick/check list or your own compliance list that if a broker falls short on you immediately eliminate them from your short-list. Choosing your first (or next) Forex broker can be far simpler if you take time to evaluate the services and features you need to give your business the greatest chance of success. When you develop your trading plan which broker you choose should be an integral part of the plan.

- What pairs are you going to trade?
- What spreads would suit you (fixed or variable)?
- Do you accept paying a commission for trading Forex?
- What would be your minimum investment ?
- What leverage do you need or want?
- What trading tools do you need, which indicators do you need for trading?
- Do you need a specific trading platform (like MT4 or Currenex)?
- Do you want to scalp?
- Do you want to hedge?
- Do you need a trailing stop; fixed or dynamic?
- Do you need or would you prefer “one-click-trading” execution feature?
- Do you wish to have mobile phone trading feature and/or trading alerts?
- Do you understand why it has to be a ECN/ STP or a Dealing Desk broker?
- Do you care about reputation of a Forex broker?
- Which way (wire transfer, credit card etc.) can you transfer and receive funds? There could be restrictions depending on the country you live in.
- How much would it cost you in fees to pay for funding, transferring, withdrawing your money?

Based on this comprehensive list we can then isolate some of the criteria into critical decision factors to ensure we make the right decision.

Security
One of the crucial aspects when evaluating the quality of a good broker is establishing that they have high levels of security. Checking the credibility of a broker is straightforward. There are regulatory agencies throughout the globe. If your intended broker does not display their credentials clearly then email the question or conduct a search yourself on the relevant database. For example were FXCC is concerned the regulatory detail is clearly marked on the company’s website and links are provided to the regulatory bodies (Cyprus Security and Exchange Commission). The separation of client funds is crucial to your evaluation.

- United States: NFA, CFTC
- Canada: BCSC, CIPF, OSC
- United Kingdom: FSA UK
- Switzerland: SFDF, ARIF, FINMA
(All Swiss Forex brokers require to have a banking license)
- Sweden: Swedish FSA
- Denmark: Danish FSA
- Spain: CNMV
- Japan: FFAJ, FSA Japan
- Hong Kong: SFC
- Australia: ASIC
- Dubai: DMCC, DGCX, DFSA, ESCA

This is not a complete list, for other countries there will be other Forex regulatory bodies to supervise Foreign exchange businesses.

Transaction Cost
Traders are always be subject to transaction costs. Each time you enter a trade you will have to pay for either the spread or a commission or a combination of both, therefore it is incumbent on traders to establish the most affordable and cheapest rates. However, enticing advertised spreads can often be misleading. There is a balance to be sought out between security and low transaction costs. If a broker can efficiently deliver spreads of circa 1pip on the majors then in lots of respects that’s as good as the process of FX trading can deliver.

Deposit and Withdrawal
Reputable brokers will always allow you to deposit funds and withdraw your profits with a minimum of fuss. If you choose a broker and you then experience any lag or difficulty when transferring your funds out never give them a second chance. Their probity and efficiency should be as effective as a high street bank. There are no exceptions and many experienced traders will test the broker before committing more serious funds. They may deposit a small amount, then days later attempt to transfer out funds. If that procedure is not seamless then they move their account immediately.

Brokers have no reason to make it difficult to withdraw your profits because the only reason they hold your funds is to facilitate YOUR trading. Your broker only holds your money to make YOUR trading easier. Your broker should make sure that the withdrawal process is speedy and smooth.

Trading Platform
In online FX trading, the majority of trading activity takes place through the brokers’ proprietary trading platform. The trading platform of your broker must be user-friendly and stable. However, there are brokers who prefer to offer Meta Trader and Currenex or both. These specific bespoke trading platforms offer features that a proprietary platform does not offer. When operated in an ECN environment they are regarded as the only professional retail solution. When evaluating a broker’s platform, always check what it has to offer. Does it offer free news feed, easy-to-use technical and charting tools, is all the relevant information at your fingertips supporting you to trade properly?

Execution
It is compulsory that your broker fills your trades at the best possible price. Under normal market conditions ( normal liquidity, no important news releases or surprise events), there really is no reason for your broker to not fill you at, or very close to, the market price you see when you click the “buy” or “sell” button, you should get filled at that price or within micro-pips of it. The speed at which your orders get filled is very important, especially if you’re a scalper. A few pips difference in price can make that much harder on you to win that trade.

Customer Service
Brokers are not infallible, you must select a broker that you could easily contact when problems arise. The competence of brokers, when dealing with account or technical support issues, is equally as important as their performance when executing trades. Brokers may be helpful during the account opening process, but have poor after sales support. You will need to contact your broker at some stage, taking time out in developing a rapport with certain individuals can help enormously with any future difficulties. On reflection perhaps service would be a good place to start, test out the broker by making that first contact..we’ll be glad to hear from you.

Source: FX Central Clearing Ltd. (FXCC BLOG)
http://blog.fxcc.com/ive-got-ninety-nine-problems-but-a-broker-aint-one/