Opening a Forex Account: Why Use a Regulated Broker? by FxPremiere Group
Opening a Forex Account: Why Use a Regulated Broker?
Opening a Forex Account: Why Use a Regulated Broker?
Before you begin to trade on the foreign exchange market, you need to open a foreign exchange account. A forex account can be opened with hundreds or thousands of brokers, but there are major differences between regulated and unregulated brokerages. When you’re opening a forex account, you need to compare multiple brokerages and settle on the one that is most applicable to your trading style.
Choosing a Forex Broker
There are many ways that a forex broker can differ from others. Forex brokers are all competing for your business, but because there are different types of trader, there are brokers that may be more or less suitable to your types of trades. Here are a few things you need to consider: Opening a Forex Account: Why Use a Regulated Broker?.
- Minimum deposits. A minimum deposit for a forex broker is generally a few thousand dollars, but some have no minimum at all and some may only require a few hundred dollars. When it comes to forex, having a minimum deposit really isn’t as necessary as it is in the stock market, because the forex market is so approachable and because you can get started with a small amount of money. However, it is also true that most of the larger forex markets have larger minimum deposits.
- Fees. There are different fees that are associated with a forex broker. There are per trade fees, which are flat fees, and there are spread amounts, which are essentially a percentage that is based on the currencies that are being traded. If you are trading large quantities of small trades, you want to have low flat fees more than you want low spreads. If you are trading small quantities of larger trades, you want to have low spreads more than low flat fees. But either way lower spreads are better and the spread is currency-based. Some brokers have better spreads on highly traded currencies but higher spreads on exotic currencies. Other brokers may have better spreads on exotics but not on common currencies.
- Currencies supported. Any forex broker is going to support traditional currency pairs such as USD/GBP. But there are some more exotic pairs that may not be available. If you are the type of trader who likes to experiment with different types of currency trading, you may need to go with a larger broker who is going to be able to support those trades. You should always check the amount of currencies supported, especially if you think you may need to expand moving forward.
- Internal tools. Some forex brokers have internal tools that are used for trading and these can be quite advanced. Some of the larger brokers are going to have essentially trading platforms that can (or have to be) used to trade on the market. These can have advanced signaling software built-in, and the ability to automate some of your trading. Because of this, you may also want to choose your forex account based on the tools that are provided.
- Leverage. Different broker will offer different amounts of leverage. Scalpers and other high risk traders usually want greater leverage, whereas those who are starting out or who want to minimize risk may only want a little bit of leverage.
- Reputation. You also want to find a broker that has a solid reputation already established within the foreign exchange industry. You can check online reviews and the Better Business Bureau to see whether there have been any open complaints raised. Reputation is important because the forex trading industry is a fairly well-knit one, in which a poor reputation generally means poor customer service.
- Regulation. Finally, there is the meat of the issue: regulation. Regulation means that the broker adheres to the regulatory standards of the countries that it is operating in; for most traders, that will be the United States, Canada, or the United Kingdom. Not being regulated means that essentially the broker is playing by their own rules, and that can be a serious detriment.
Opening a Forex Account
When opening a forex account, you’re going to need to provide your own personal information and you’re going to have to fund your account. Usually funding is done via a wire transfer; in fact, many brokers won’t accept anything but a wire transfer. Funding can also be done through checks, money orders, and even cash deposits at certain banks, but a wire transfer is generally more secure and easily traced.
Because you are sending your money to a broker who could be in another country entirely, it does become important for a foreign exchange account to be held by a regulated broker. These regulations aren’t always about trading but also about security. A broker that does not maintain solid security could be a broker that could leave your information, financial and otherwise, vulnerable.
Once the forex account is opened (usually a matter of three to five business days), you will usually be able to begin trading immediately. You can set the amount of risk that you want to take in terms of the amount of leverage you want to attach to the account; for instance, 5 times leverage means that you can trade five times the amount in your account. Usually you want to keep this low as you are starting out – Opening a Forex Account: Why Use a Regulated Broker?
The Importance of a Regulated Broker
When you’re looking for a broker you may notice that some brokers seem to be offering better terms than others. They may allow you to trade on more significant margins, open accounts with less money, or leverage your money far further than they really should. These are brokers that are far more likely to be unregulated; you can tell because regulated brokers will tell you that they are regulated and insured.
An unregulated broker can offer any terms they want, but the limitations on terms are extremely important. These limitations are things that protect brokers, especially brokers who are not experienced. Limitations on the ability to trade are designed to reduce the amount of risk that you can take on to appropriate levels. If you can take on more risk, you’re more likely to lose everything – Opening a Forex Account: Why Use a Regulated Broker?
Moreover, this is also a very unstable way for the broker themselves to operate. If the brokerage isn’t operating in a safe way, that means that it is very likely that the broker will not stay in business. If an unregulated brokerage ends up folding, it means that there is a potential for you to lose everything as well. It’s possible that an unregulated broker may simply go out of business without resolving any accounts, and because the money is not insured, there may be no recourse for you.
Many unregulated brokers run out of countries that have a further lack of regulation, and this can also make it difficult to transfer money in and out, and to maintain your trading operations. Altogether, the benefits of using an unregulated broker is generally not even close to being worth any perceived savings.
A regulated broker is a safe broker. Not only will they have the lowest rates, but you won’t be taking on larger levels of risk — and you’ll be assured that the forex broker will say in business. Whether or not you’re using a regulated broker, you’re going to need to know when to trade. We offer trading signals for everyone from new brokers looking for leads to experienced brokers looking for additional research. Sign up today to see what we can do for you- Opening a Forex Account: Why Use a Regulated Broker?.