Learning how to do forex trading is fun and exciting. Sometimes, though, it could also be frustrating as there are a lot of things you need to remember. There are jargons you need to learn and, importantly, how to trade. Forex trading can potentially earn you a lot of money, but making serious mistakes such as choosing the wrong forex broker could also cost you a lot.
Brokers are important when you are doing forex trading because you use their platform whenever you do a transaction. However, with all the forex brokers out there promising great results, it could be a challenge deciding which one to choose. Experts such as Engine Forex can help you find the right broker, and by considering the following:
1. Type of forex broker
There are two types of forex brokers. You have the Dealing Desks and the No Dealing Desks. In order for you to make a more informed decision, you need to know the difference between these two brokers.
The Dealing Desk (DD) brokers are also called the market makers. They are the ones who create market for their customers or clients. This means that these brokers are also the ones who are on the other side of the trade when their client makes one. This may seem bizarre and you may think it’s a scam, but it’s not, although it may look that way. It is more like forex trading risk management.
When you place an order, the broker will try their best to find a matching order from other clients or they could pass it on to the liquidity provider. The liquidity provider sells or buys financial assets at once. Doing so makes them earn from the spread with minimum risk. On the other hand, if they do not find a match, they will be on the other side of the trade.
No Dealing Desk
The No Dealing Desk (NDD) broker, on the other hand, does not take the other side of the trade. All they do is link two parties together like bridge builders. This means the clients are passed directly to liquidity providers. They normally charge a smaller fee or commission.
2. Research and read reviews of forex brokers
Doing extensive research may take up some of your time, but it is better to be safe than sorry. If you would only visit a broker’s website and read reviews from there, you would not even know if they are all true. They could be paid or simply made up.
The best way for you to find honest reviews is from forex forums. You will be able to read all the good things and all the bad things. However, you should understand that there is no perfect broker. Someone will have something bad to say about a company. This means that you actually have to interact with your fellow traders and ask specific questions.
When you’re doing research, make a list of companies that you like. The older the company, this means that they are doing something right. They should also be regulated by their country’s specific regulatory organization. It is easy to check as this information is available online on the website of the regulatory organization.
Also, be sure to read the policies, terms and conditions, and trading rules of a broker. Make sure that they are transparent by providing all their contact details on the website. Give them a call and ask all questions that you may have. This should also tell you if they have good customer service.
3. Create an account in your top 3 list
After you have done your research and you have come up with at least 5 brokers, make an account with the companies in your top 3 list. You don’t have to open a $5,000 USD trading account immediately. Open an account with maybe $200 USD.
Trade and see what happens. If you make a profit, withdraw that profit. This way, you can get a feel if you like the trading platform and the services being offered. You need to know you can trade with ease and withdraw profit easily as well.
Doing your homework before you decide on a forex broker will be beneficial to you for a very long time. However, if you are being lazy and you don’t do extensive research, you could very well kiss your money goodbye.
You need to be smart when you are trading. You could lose thousands of dollars if you make a wrong decision and choose a shady broker. It is possible that the company could run away with your money. Be smart. Choose your broker wisely.