How to choose a good forex broker?
So there are many good forex brokers out on the market but how do you find the right one for you?
In this step-by-step tutorial, I will teach you how to find a good forex broker and what to look for when it comes to forex brokers. And how to find a good broker that won’t just run of with your money or charge you super-high fees. In the end, I will also include my personal recommendation.
So the first thing to keep in mind is leverage:
This part being the part with the line on the side is made for beginners:
What is Leverage? Leverage is how much can you trade by borrowing funds from the forex broker.
For example: If you deposit 100€ and there are 100 in leverage you can trade with 10 000€. This is as the leverage multiplies with the initial deposit into the trade so if you deposit 100€ like in this example the total trade value is: 100€ so your deposit is multiplied by 100 so the leverage so (100*100) which is 10 000€.
Why use leverage in forex: The reason leverage is used in forex and not that much in stocks and crypto is because forex is a lot less volatile so it doesn’t move as quickly as stocks do. This means you have to have a high amount of capital for the moves to even impact your capital percentage-wise. And as a lot of people don’t have one hundred thousand dollars or a million dollars just lying around they use leverage to be able to make any significant profits on their accounts.
This is especially important if you have a low amount of capital upfront to trade with let’s say 250$ — 1000$.
It’s also important to use leverage the right way as it increases the overall risk when trading. So use a properly calculated stop/loss and take/profit. From personal experience a good risk amount for a smaller account is somewhere between 2–3% so if you have 500$ it might be a good idea to risk 10–15$ (2–3%) for the stop loss to avoid over-risking.
When looking for leverage when choosing a brokerage it’s especially important to know that a lot of brokers that offer very high leverage tend to a lot of time not to be as serious and regulated.
A high-leverage broker is a broker offering 1:500 or 1:1000 leverage. I think 1:500 and 1:1000 are far too much leverage to use as it would be more gambling than trading as you can lose your whole account with such a high leverage from only one or two trades. A good leverage level would be somewhere around 1:30 as this gives you a good amount to trade with without over-risking your account.
Another super important thing to look for is regulation. Let’s say the broker has some financial problems and goes bankrupt think about what protection you have with them. Does the broker seperate client funds from their own profits? And is it a B-book or A-book broker meaning do they complete the trades for you or are they just letting you enter trades without them being entered and paying you out of their profits if you profit from trades?
Also, keep in mind how long has the broker been in business and what is the overall score on sites like Trustpilot.
When choosing a broker be careful and have common sense.
Here is a summary/checklist when choosing a good and reliable forex broker:
- Has the broker been around for a long time? (If it has it is usually a more trustworthy brokerage)
- Is the broker regulated? (so your funds are safe)
- Does the broker charge high fees? (for example commission fees when trading, extra fees for holding positions overnight, inactivity fees or any other type of fee?)
The broker I would recommend for every trader is AvaTrade.
It’s a highly regulated broker. AvaTrade is regulated by authorities in the European Union, Ireland, Australia, Japan, South Africa, Abu Dhabi, the British Virgin Islands, and Israel. They also offer 1:30 in leverage which as mentioned before is a good leverage.
The minimum deposit on AvaTrade is also very low starting at only 100$ so even a complete beginner who only wants to try trading for the first time can get started. However, I would personally recommend starting with at least 1000$ to ensure you also learn the emotional part of trading. This recommended deposit amount is good as it will make the trading feel a bit more emotional, so when you make or lose money you will learn to deal with the emotional parts of trading more. However, if you feel like 1000$ is too much you can also go with a lower amount to just get the hang of it.
One thing I like about AvaTrade is they charge NO COMMISSION FEES whatsoever… yes you read it right there is no commission on trades. Though there is a bid/ask spread like there is on nearly all forex brokers. This bid/ask spread is in comparison to a lot of brokers out there very low.
Get started forex trading and join AvaTrade here:
https://bit.ly/signupavatrade
