Of all the aspects that you need to consider before you get started in forex trade, choosing a forex broker is the most vital. You have to go for a broker who will not only help you out with all the intricacies and complexities involved in forex trading but also suit your temperament and frame of mind. The task is definitely not a cakewalk. But then again it is certainly not so abstruse that you keep on looking forever. There are many levels and types of brokers that you will come across online. Some might be perfect crooks and some are legitimate, so you need to be very careful.
All legitimate forex trading brokers follow certain rules and principles that set them apart from the illegal betting firms although every broker has his ways of conducting day-to-day business. First we will touch upon the type of brokers that one comes across. Thereafter, we will review the parameters or quality yardsticks that authorized or registered forex brokers should possess. For a beginner, it is very vital that he opts for the one that will be in sync with his level. There are forex brokers who operate at a very high level with ready accessibility to the markets and there are brokers who are far removed from the hustle bustle of a forex market.
The different levels and types of Forex Brokers
- Bucket Shop Brokers: – Such brokers always take positions that are contrary to the trader. They are not in touch with the real time forex markets. Steer clear of such brokers.
- Book Makers: – A bookmaker operates in a manner similar to that of a bucket shop broker. The only striking difference is that he makes his profits which come from the difference between the ask price and the bid price. Also known as spread betters, they don’t have any connection with the forex market.
- Retail Market Broker: A majority of the online forex brokers happen to be retail market dealers. Some have direct access to the forex markets while others take recourse to it via media. They offer the best of forex trading strategies to their customers and hence most suitable for those are relatively new to forex trading.
- Institutional or organizational market maker: – They have a very degree of accessibility to the forex markets and offer high leverages. They are very reliable but you need to invest in a big way to be on their platform.
- Institutional Forex Brokers: – Institutional brokers are usually syndicates of more than 100 banks. More than half of the daily forex turnover is contributed by such syndicates. Retail speculators and investors are not allowed on their platforms. They have the best access to the interbank markets. No broker can claim to have direct access to interbank markets. They also harness the best of forex trading tools.
The parameters for rating a good brokerage firm
- Robust foundation.
- Must be registered.
- Must offer minimal spreads
- Elasticity in leverage.
- Multiplicity of accounts.
- Must offer demo account.
- Realistic Trading not bordering on emotion.
- Customer service and support