“They Call Them Brokers Because They Leave You Broker”

When it comes to trading, perhaps the biggest decision you will face outside of placing your trades is choosing your broker. This is because by far the biggest cost factor you face as a business person is directly linked to your broker agreement and it’s inherent fees, both hidden and blatant. You must educate yourself on all of the various defense mechanisms you can employ in order to secure yourself the best deal possible when it comes to choosing your broker. Remember, in trading, defense truly does win championships.

It is true, that studies have shown the biggest hurdle facing traders is their trading costs. I have even seen studies shown where after factoring for costs and fees, 98% of day traders wind up non profitable. I should know. I recently did a deep dive on a 6 month stint of one of my own day trading accounts, and even though I had an ~80% win rate in my account, my P/L was actually negative because my trading costs were so high. After commissions paid, I was actually in the red. So much for that strategy right?

Sometimes though, it doesn’t even matter how good your strategy is though, if your broker is broker than you are. Indeed I have even faced this situation myself while trading prop in my early days. We were told by our broker that they had been wiped out by another trader’s short position in a pharmaceutical stock that skyrocketed on news and consequently they were left under capitalized and seeking investors to shore them up. Not only could they not pay out the remaining balances in our accounts, but they stopped returning our calls. So much for that broker.

Next there is the broker, who is nothing more than a traitor looking to trade against you, or worse and just rob you blind. I have come across this too so you shouldn’t have too, baby. What? Never mind. Just remember that there are wolves in sheep’s clothing everywhere in this industry, and so finding a trustworthy broker is imperative. I would urge you to read up on Market Makers and ECN’s and learn about the broker industry. One book I highly recommend on this subject is James Dick’s The Forex Edge – here you go -> Forex Edge Uncover Largest Financial

Ideal Broker Types and Stripes

Certainly there are brokers of many shapes and sizes, and depending on the type of trading you do, you will need different bells and whistles to suit your specific needs. Think of choosing a broker like getting a nice suit, it is always better to get it tailored.

So what does one look for? The answer to this question logically speaking is dependent on your trading style and needs. You should know exactly what type of trader you are, and this should be up to you to figure out independently. I will touch on this topic in a later article, but for now I will just outline which features to look for generally, and more specifically for Forex. Another point worth mentioning though is that different trading industries will require different broker types, so for instance an options trader will not be looking to use an MetaTrader 4 (MT4) platform like a retail Forex trader would be, and the interests of the options trader would be vastly different than those of the Forex trader. The same goes for Forex and stock or Forex and futures traders. Each industry is different, and so to therefore are the different broker types. You wouldn’t go to a real estate broker to buy shares of AAPL.

With that in mind, let’s take a look at the typical needs of the Forex trader. In retail Forex trading, the industry dominant brokerages typically run on what is known as the MT4 platform. You can download MT4 on your phone and select your broker and enter your account login details and voila, you’re now a mobile trader. What a world. Just a few short decades ago, this was virtually unheard of, but now in trading the barriers to entry are so low as to be tempting to many novices who have no understanding of what they’re doing but suddenly think they’re a pro. Easy access, like leverage, can be a double edged sword though.Generally speaking, you want a reliable broker, with tight and non manipulated spreads, low costs, transparently low fees, and great and reliable customer service.

When it comes to picking the right broker, there are many things to consider, and it will be somewhat arbitrary, albeit less and less so, based on where you live. For instance, if you’re in the US you may be concerned with whether your broker is insured and regulated and registered with either/or FINRA, the FDIC or the CFTC. You should choose a broker who is both protected, ie insured, as well as regulated by a body ideally within your own jurisdiction. The Broker I use personally is regulated by IIROC and insured by the CIPF here in Canada.

It is also important to check that your chosen broker is well established and large enough as to not go insolvent, and protect yourself against potential fraud. One way to do this is by checking customer reviews online and with their governing regulatory bodies. You should also know whether they are a market maker, or an ECN or both. I won’t speak for all “Market Maker” brokerages out there, but it is well known that many actively trade against their clients, ie their traders, ie you and me. We don’t want to be Muppets to our brokers. That being said, some market makers do offer perfectly legitimate service.

Arguably the most important factor we should consider while choosing a broker, and one that is often the least well understood by traders is Fees. Fees are what will affect your bottom line more than anything else you will encounter as a trader. It is your job to thoroughly understand your brokers fee structures and how they will impact your profit. Make sure if they change the fee structure as well which they tend to do, that you understand how this will impact your trading. There are many different types of fees and costs to consider. This is imperative to know and thoroughly understand before you begin placing trades.

Read your brokers fine print.

Seriously.

On the flip side though, you may be able to take advantage of rebates as a trader, and actually make money as well on carry trades if your broker honours or offers these juicy add-ons. You should be aware of these potential advantages as a Forex trader, and take advantage wherever possible. Many brokers may avoid disclosing these opportunities, and oftentimes you may need to make arrangements with your broker in order to capitalize. Make sure you research ahead of time what your strategies expected R/R is before you attempt to capture spread rebates however.

Everyone’s a Snowflake

Beyond these crucial points, choosing a specific broker will also be a matter of personal preference, especially given your individual level of sophistication. You may be searching for faster data feeds or more exotic offerings, or perhaps just better charting and technical analysis software. Whatever you’re into, there’s a broker for you, but generally speaking, most Forex brokers using MT4 platforms are converging in their product offerings and bid/spreads are typically tight and less and less manipulated.

Now more so than ever, Trading is becoming less and less about your broker, and more and more up to the trader. There are many ways to skin a cat they say, but there are equally as many ways to go broker in Forex. Make sure you test out your broker on Demo and understand how to navigate your way around your platform before you decide to deploy your dollars into battle for real.

At www.forexlens.com we have a recommended brokers page with different suitable retail brokers we recommend for different jurisdiction depending on where our traders reside. Each one has certain relative advantages so be sure to choose one that’s right for you. Check out the trusted brokers page.

Who is Op-Ed & Forex Lens

Op-Ed is an avid trader and learner of all things life, with an inspired sense of duty to help others achieve their goals and dreams. Ed has 7 years of financial and trading experience, having both worked on the broker side, as well as prop trading and in trade support. He has also worked as a professional corporate currency trader and focuses mainly on Gold, the S&P and Forex. Ed is also interested in beginning to mentor students more formally, as he has informally over the years. He is always available to talk shop.

Call me or send me a chat now if you want to learn more about how to get started in trading!
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