Choosing a Broker

Having a good broker is an essential foundation of your trading success.  Which broker you choose should also depend on your style of trading which newer traders may not have come to terms with yet.

The broker I use is Etoro. You can open an account with them by clicking this link and you get a $200 in eToro credits to invest with! Etoro’s fees and spreads are good, I like the simple interface and they have the ability to Copy other Traders.

Demo account’s are offered by brokers to allow you to try out their platform without risking real money and I would encourage anyone starting out trading to spend at least 6 months trading in demo mode before risking real money.

Platforms vary between brokers. Some brokers offer you a choice of platform. Common platforms for retail clients are Metatrader 4 and Tradestation. Metatrader 4 is available on iPhone and Android as well as Desktop so this can be a good choice. You may also be interested in trading from a web browser if you switch machines a lot so look to see if your broker offers this.

Deposit Bonuses are there to lure you in with the promise of free money, normally a percentage of the amount you deposit. This however is not money you can withdraw and any money you lose will come out of your deposit. For instance if you deposit $1000 and get a deposit bonus of 50% bringing your account balance up to $1500, if you end up losing $500 your account balance will still show $1000 but you will only be able to withdraw $500 of that.

Negative Balance Protection is another important consideration. If there is a Black Swan event and the broker is unable to close out your positions in time you may end up actually owing the broker money which is not a situation you want to be in.  Some brokers offer it as standard which means they are confident in their own risk management measures.

Spreads and Fees are worth spending time researching in detail. Most brokers quote only Spreads to show how competitive they are, but you need to look more closely at their fee structure to see if they charge fees per trade, and overnight rollover fees. If you are holding positions open for more than a day a 2 then the rollover fees can mount up, and if you are trading small sizes then watch closely for any per trade fees.

The Markets that the broker offers need to align with the markets you want to trade. Common markets are Forex (Foreign exchange), Metals (Gold, Silver), Oil, Stocks, Indices. Check the fees associated with the markets you will be trading as a broker may have competitive fees on Forex but not on Stocks.

Copy Trading is offered by a small number of brokers. The idea is the platform lets you copy the trades of an experienced trader automatically so you get to achieve the profits and losses that they do. The person you are copying receives a portion of your trading fees and if they have a lot of copiers they may also get other benefits from the broker like reduced spreads and reduced fees for themselves plus other bonuses.

Deposit and Withdrawal methods vary but typically most brokers let you deposit money through a variety of forms such as Credit Card, Paypal, Wire Transfer. Make sure when you register that you use your real name and address because when you actually want to withdraw money they will only let you withdraw to an account with that name. You will be expected to provide various proofs of identification. Typically Deposits are free but Withdrawals incur a fee.

Regulation is extremely important. Brokers that are unregulated exist, but if you run into problems you have nobody to complain to, which may mean you lose all your money. The FCA in the UK is a well respected regulator, but make sure to check the brokers claims directly on the regulator’s website to make sure they are actually registered.

Tax is of concern if you make profits from trading. The tax situation varies from country to country but typically profits trading are taxed as Capital Gains. In the UK you can open a special type of account called a Spreadbetting Account which is tax free.

Margin gives you the ability to make large profits or losses from a small amount of capital. Many brokers offer ridiculous levels of Margin such as 200:1. Look to make sure you can trade with lower levels of margin if you want to and avoid the highest levels of Margin.

Conclusion

There are literally hundreds of brokers out there all competing for your business and this competition makes for staggeringly cheap trading compared to a few years ago.  Spend some time coming up with your criteria for a good broker, then do some research to see what’s out there.  Don’t be tempted by high levels of margin, and huge deposit bonuses as they are not the main things you should be focusing on.  Good luck and Happy Trading.

The broker I use is Etoro. You can open an account with them by clicking this link and you get a $200 in eToro credits to invest with! Etoro’s fees and spreads are good, I like the simple interface and they have the ability to Copy other Traders.

Disclaimer: The materials appearing on this website do not constitute financial advice and are provided for general information purposes only.

Leave a Reply