CHOOSE A BROKER IN THE FOREX MARKET
In the CIS, the benchmark for quality work in the FOREX market for financial companies is the large western brokerage houses. Serious investors choose them and, first of all, for reasons of reliability. In many ways, these preferences are due to psychological reasons. Historically, everything Western (whether it's jeans, a bank or a broker) seems to Russian citizens who have lived for decades behind the "iron curtain", better, more reliable and prestigious. However, the bankruptcy of such giants of the Forex market as American Refco and the Swiss Sovereign Financial Group caused many of our fellow citizens trading in world currencies to take a fresh look at the question of choosing a broker. So, what should we look for when deciding to start cooperation with a financial company?
Let's start with reliability
A reliable financial intermediary is usually considered to be a broker with a long history of work, a license and control over the regulatory bodies, with an insurance system for its responsibility to customers, a well-established system of risk management within the company, legal transparency, and security of contractual relations. At the same time, the company should still be quite respectable, although each of us understands this term in its own way.
In itself, the term of work does not guarantee anything: the above-mentioned large Western companies existed on the market long enough. However, the risk of losing money in a one-day firm is much higher than that of a broker who provides access to its clients to financial markets for more than one year. A long history of work is the debugged mechanisms of risk management (otherwise, the company would have already gone bankrupt), qualified personnel, reliable partners, financial reserves, etc. In short, a company with a work history has advantages over newcomers to the market.
Documents and regulatory bodies
Unfortunately, as practice shows, the availability of licenses and control of regulatory bodies, whether state or industry, also does not guarantee the safety of your money. However, this is a serious plus in choosing a broker.
First, the licensing process itself cuts out scams. The company is obliged to disclose to the state its owners, to provide statutory documents, accounting statements. In addition, the regulatory authorities in one form or another control the operational activities, financial performance of the company.
Secondly, there is always an organization where a client can appeal with a complaint or a claim. Thus, in the US, brokers in the Forex market are supervised by the CFTC (Commodities Futures Trading Commission) - a government commission in the status of a federal agency. In England, this is the FSA (Financial Services Authority). In Russia, the controlling organization for marginal transactions in the OTC foreign exchange market is not yet available. However, if the Russian deputies tackle this problem, it can be assumed that it will be the Federal Service for Financial Markets. The FSFM already controls the activity of brokers in the stock, commodity markets and the derivatives market. So when choosing a broker, it is worth paying attention to what licenses he has, who issued them and for how long.
In case of placing considerable funds at the broker, it is not superfluous to ask what guarantees the safety of your funds will give you a broker. In England and the United States, such guarantees may be segregated accounts and guarantees of repayment of funds from the government. In the CIS and other non-regulated countries, reliable brokers are interested in this or that way of solving this issue. For example, well-known brokers from Russia insured their liability to clients in insurance companies "Ingosstrakh" and "Soglasie", respectively. However, this is not the only way to show customers their reliability. This can be, for example, the guarantee of a large US or European bank or some other method.
When you start cooperation with a particular company, it is important to pay attention to the contract that you sign and on the basis of which you then have to work (God forbid sue). The contract should fully describe all the essential conditions of your interaction with the broker on the basis of civil law.
Serious companies in their activities are guided not only by the contract, but also by the public rules for the performance of transactions, transactions, which describe all the numerous nuances (trading conditions, types of orders, disputable situations, etc.). The absence of regulations should alert the potential client. If you are going to work with a domestic broker, and for financial calculations you are offered a foreign company or even an offshore company - this is an occasion to reflect. To think about how and where disputable situations will be decided, how you will transfer money. Settlements with foreign companies (even not necessarily offshore ones) can get under the "anti-laundering" companies, both in the CIS and abroad. Is it nice if your money "hangs" on a bank account or a trading account will be blocked only because you are a Russian citizen, or another country from the former USSR? Again, interest in your payments may sooner or later manifest the tax authorities at your place of residence.
In the CIS, some brokers work on a "bookmaker" scheme, offering their clients to bet on exchange rates. It is also important to understand in advance and be prepared for the fact that in the event of controversial situations, your "rates" under Russian law are equated to "betting" transactions, i.e. not subject to judicial protection.
Risk management
Many traders often ask the question: "Where does my winnings come from in case of a successful transaction?". Usually the work of all dealing centers is structured as follows: the broker "takes care of the small positions"; acts as the second party to the transaction, and transfers large ones to a larger counterparty. Thus, the client's winnings are paid either from the loss of other clients or from his own pocket (that's why, for example, a reliable broker should have a large amount of own funds, financial reserves). A large position, usually a volume of 1 million or more, is shifted to larger participants (banks, for example). Such a transfer of risk is called the overlap of the net position. Often, in small start-ups, there is no overlap, and clients risk being left with nothing in case of a big win. Therefore it is important to find out, how the risk management procedure is organized in the company and where the dealing center covers the net position. Of course, all the details you will not be told (this is a commercial secret), but something will certainly be found out. If your broker completely refuses to talk on this topic, then again this is the reason to think whether you need this broker.
Now about the reputation
It's hard to argue whether the company has a positive reputation. And if there is, then on what grounds it can be judged. Alas, neither the presence of prestigious awards, nor the high places in the ratings in our country (and not only us) are not indicative of a good reputation. It's just a matter of money. But about the presence of negative reputation (defrauded customers, litigation, etc.), you can find out easily enough, using the Internet search capabilities and specialized forums.
Working conditions are always important
Qualitative working conditions are traditionally attributed to: accurate quotes and competitive spreads, trading with guaranteed execution of pending orders, a modern trading platform, a wide toolkit, interest accrual on the clients' trade deposit.
In the question of quotations it is desirable to clarify at once your broker, where he receives them. Typically, such sources can be information systems such as Reuter, Bloomberg. It's great if a financial company can confirm the right to retransfer the quotations by an agreement. This means that she is not engaged in theft. It happens that the dealing center (especially if it is Russian) receives quotes directly from its Western broker. Periodically, in the stream of quotations, any broker has "emissions", i.e. non-market transactions are clearly higher or lower than current prices. These emissions can severely damage the client's open position (for example, closing it with a large loss on the stop-order). It is advisable to find out in the broker's regulations or in an oral conversation how such emissions are filtered and whether they are filtered at all, and also how disputable situations are regulated, arising from non-market quotations. Solid brokers usually cancel all transactions as a result of the release and return losses to the losing customers and write off profits from the earners.
Spread
Usually newcomers to the Forex market when choosing a broker first of all pay attention to the size of the spread. And dealing centers, in turn, entice customers with catchy advertising, say "only we have a spread on ... followed by the name of the currency pair ... from one point and below." Experienced traders know that a solid and reliable broker is unlikely to become dumping in this area, and not so meticulously refer to the size of the spread. Although, of course, very few people like to pay more when you can pay less.
More important factor is the execution of orders. Around the guaranteed execution of pending orders there are great disputes. Some argue that brokers who guarantee the execution of orders take a greater risk than brokers who work with slippage. Without going into arguments, I want to note that guaranteed execution of pending orders when working with a reliable dealing center is a great benefit for the client. I'll give you a concrete example. Imagine that before the release of data on unemployment in the US, you tear off two identical positions for buying a pair of euro / dollar at a price of 1.21 in two dealing centers. One broker has a guaranteed execution of pending orders, and the other does not. Fearing the release of positive indicators and, as a consequence, the growth of the dollar, you put a stop-order to both positions at a level, say, 1.2. After the release of the data, it appears that unemployment in the United States has fallen significantly more than analysts expected, and the rate instantly falls to the level of 1.19, that is, in the language of the trader, "makes two figures." In one dealing center, the stop order is triggered, and you fix one hundred points of loss, and in the other, you have a loss-making position of 200 points. Moreover, it can still increase if the rate goes lower. Of course, such situations happen rarely, but, nevertheless, happen, and this can lead to the loss of significant (if not all) funds. That is why the issue of guaranteed execution of pending orders is much more important than the size of the spread. in the words of a trader, "makes two figures." In one dealing center, the stop order is triggered, and you fix one hundred points of loss, and in the other, you have a loss-making position of 200 points. Moreover, it can still increase if the rate goes lower. Of course, such situations happen rarely, but, nevertheless, happen, and this can lead to the loss of significant (if not all) funds. That is why the issue of guaranteed execution of pending orders is much more important than the size of the spread. in the words of a trader, "makes two figures." In one dealing center, the stop order is triggered, and you fix one hundred points of loss, and in the other, you have a loss-making position of 200 points. Moreover, it can still increase if the rate goes lower. Of course, such situations happen rarely, but, nevertheless, happen, and this can lead to the loss of significant (if not all) funds. That is why the issue of guaranteed execution of pending orders is much more important than the size of the spread. and this can lead to the loss of significant (if not all) funds. That is why the issue of guaranteed execution of pending orders is much more important than the size of the spread. and this can lead to the loss of significant (if not all) funds. That is why the issue of guaranteed execution of pending orders is much more important than the size of the spread.
Trading terminal and convenience of work
The standard for the trading terminal for brokers in the Forex market is:
1. the availability of a free demo account (ie, the opportunity to practice on virtual money, to test the trading strategy).
2. Graphical support, technical analysis capabilities, or data export to technical analysis systems (Omega, etc.).
3. Reliability of operation and low requirements to the user's computer and the speed of Internet connection.
An important factor in choosing a broker is the wealth of tools that is available to trade the company's customers. It is very important to try your hand at different markets, with different instruments and conditions. Many brokers offer the ability to trade except currencies with synthetic instruments such as CFD contracts for US and European equities. And some companies - even for Russian stocks, world indices (Dow Jones, DAX, FTSE100, etc.), gold, oil and so on.
An important point is the accrual of interest on funds on the client's trading account, as well as the ability to trade discrete lots. Well, the generally accepted standards of the largest Russian brokers are:
1. 24-hour news support for customers in the trading terminal.
2. Daily analytical studies of the markets of currencies, stocks, indices, metals.
3. 24-hour technical support.
4. Having a personal manager for large clients
Thus, a good broker consists of several important components: reliability, good trading conditions and convenience. In the CIS market there are many companies and banks that represent various combinations of these criteria. I hope that my advice will help you to determine your guide in the world of finance and avoid the typical mistakes when choosing a broker in the FOREX market.
