Choosing a broker in the Forex market
World standard of quality work in the Forex market for financial services companies are the major western brokerage houses. Serious investors choose these are the ones in the first place, for reasons of reliability. In many respects, these preferences are due to psychological causes. Historically, the western (whether it be jeans, a bank or broker) seems to be any citizens, better quality, reliable and prestigious. However, the bankruptcy of such giants of the Forex market as the U.S. and Swiss Refco Sovereign Financial Group has led many people who trade currencies around the world, to look afresh at the issue of choosing a broker. So, what should we look for when deciding whether to initiate cooperation with one or another financial company?
Let's start with reliability.
Reliable financial intermediary is generally considered a broker with a long history of work, license and control of regulators, with the insurance industry of its responsibility to customers, well-functioning system of risk management within the company, legal transparency, protection of contractual relations. The company still has to be quite respectable, even though each of us understands this term in his own way.
By itself, life has no guarantees: the above-mentioned major Western companies have existed in the market long enough. However, the risk of losing money in a firm-by-night is considerably higher than that of a broker who provides clients access to financial markets for years. The long history of work - is well-established mechanisms for risk management (otherwise, the company would already be bankrupt), qualified staff, reliable partners, financial reserves, etc. In short, the history of the company have the advantage over newcomers to the market.
Documents and regulators. Unfortunately, experience shows that the presence of licenses and control of regulatory agencies, whether government or industry, and does not guarantee the safety of your money. However, this is a serious plus in choosing a broker.
First, the licensing process itself is cut off overt fraud. The company is obliged to disclose to the state of their owners, to provide statutory documents, financial statements. In addition, regulators in some form of control operational activities and financial performance of the company.
Secondly, there is always the organization where the client can file a complaint or claim. Thus, in the U.S. control of brokers in the Forex market deals with CFTC (Commodities Futures Trading Comission - Committee on Commodity Futures Trading) - a government commission in the status of federal agencies. In England - a FSA (Financial Services Authority - Financial Services Commission). In Russia, the controlling organization for margin transactions in the OTC market yet. However, if the Russian deputies will present a problem, then we can assume that it will be the Federal Service for Financial Markets. FFMS now supervises the activities of brokers on stock and commodity markets and derivatives market. So when choosing a broker should pay attention to what license he has, who betrayed them and for how long.
In the case of a broker placing significant funds, not be amiss to ask what guarantees safety of your funds will give you agent. In England and the United States such assurances may be segregated account and the money-back guarantee from the government. In Russia and other non-regulated countries, reliable brokers are interested in a particular way to address this issue. However, it is the only way to show customers their reliability. It may be, for example, the guarantee of a large American or European bank or some other way.
At the beginning of cooperation with some companies, it is important to pay attention to the contract that you sign and on the basis of which then have to work (do not sue God forbid). The contract should fully describe all material terms of your interaction with the broker on the basis of civil law.
Major companies in their activities are guided not only by the contract, but also the rules of public transactions, conduct transactions, which are registered all the many nuances (trading conditions, types of orders, disputes, etc.). Lack of regulations should be alerted of the potential client. If you want to work with a domestic broker, and for the financial settlement you are offered a foreign company or even offshore - is an occasion to reflect. Think about how and where disputes will be resolved as you transfer the money. Settlements with foreign firms (not even necessarily offshore) may fall under the "antiotmyvochnogo" of the company, in any country. Is nice, if your money is "hung" on the current account at a bank or merchant account will be blocked? Again, your interest payments may be sooner or later show the tax authorities at your place of residence.
In the World, many brokers are working for "betting" scheme (such as Forex Club, E-Capital), offering its clients to bet on exchange rates. Here it is also important to understand in advance and be prepared for the fact that in the event of a dispute, your "bet" under Russian law are equated to the transactions "bet", ie not subject to judicial protection.
Risk Management. Many traders often ask, "Where does my winnings in the event of a successful deal?". Usually the work all dealing centers is organized as follows: small broker position "assumes" that is serves the other party to the transaction, and large shifts in the larger contractor. Thus, the client's benefit is paid either from the loss of other clients, or from his own pocket (which is, incidentally, is why a reliable broker must be a large amount of own funds, financial reserves). A long position is usually the amount of $ 1 million and above, shifted to the larger parties (banks, for example). This transition is called the overlap of the risk of a net position. Often in small start-up companies overlap is not carried out, and customers are at risk in the event of a major win to stay up with nothing. It is therefore important to find out politely, as organized by the procedure of risk management in the company and where the dealing center covers the net position. Of course, all the details you do not tell (it's a trade secret), but something will find out for sure. If your broker is flatly refuses to talk on this topic, it is again a reason to think - whether you need this broker.
Now for the reputation. Hard to argue whether the company's positive reputation. And if so, on what grounds can be judged. Alas, neither the presence of prestigious awards, or high in the ratings in this country (and not just ours) are not indicative of a good reputation. This is only a question of money. But the presence of a negative reputation (defrauded customers, litigation, etc.) can be explained quite easily by using the search capabilities of the Internet and specialized forums.
Working conditions are always important.
For quality working conditions traditionally include: accurate quotes and competitive spreads, trade with guaranteed execution of pending orders, advanced trading platform, wide tools, interest on commercial deposit customers.
In the matter of quotations it is desirable to check with your broker, from which he receives them. Typically, such sources may be information systems such as Reuters, Bloomberg. Remarkably, if a financial company can confirm the right of retransmission contract quotes. This means that it is not engaged in theft. It happens that the dealing center (especially if it is Russian) receive quotes directly from its western broker. From time to time in the quotes flow from any Broker happen "outliers", ie non-market transactions is clearly higher or lower than current prices. These emissions can be very damaging to the open position of the client (for example, covering it with a lot of stop-loss orders). It is desirable to find a broker in the regulations or in an oral interview, as these emissions are filtered and filtered if at all, and as governed by disputes arising from non-market prices. Reputable brokers usually void all transactions arising from the release and return losses of the losers cheat customers and have earned income.
Spread. Usually, newcomers to the Forex market when choosing a broker primarily pay attention to the magnitude of the spread. And dealing centers, in turn, lured customers catchy advertising, he says, "only here to spread ... 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 be dempingovat in this area, and not so critically related to the magnitude of the spread. Although, of course, very few people like to pay more when you can pay less.
More important is the execution of orders. Around the guaranteed execution of pending orders are highly controversial. Some have argued that the brokers to ensure the execution of orders, take on more risk than the brokers who work with such a slip. Without going into the debate, I want to note that the guaranteed execution of pending orders when dealing with a reliable Internet broker - a great benefit for the client. Let me give a concrete example. Imagine that before the release of data on unemployment in the U.S., you tear off two identical position to buy a pair of EUR / USD at a price of 1.21 per two-dealing centers. One broker has guaranteed execution of pending orders, and another - no. Fearing the yield of positive indicators, and as a consequence, the growth of the dollar, you are putting a stop order to the two positions at the level of, say, 1.2. After the release of the data is that unemployment in the U.S. declined significantly more than analysts had expected, and the course instantly drops to 1.19, that is, to use the language of traders, "makes the two figures." In one dealing center stop order is triggered, and you commit a hundred points of loss and the other you are left with a losing position at 200 points. Moreover, it may even increase if the rate goes lower. Of course, such situations are rare, but, nevertheless, occur, and this can lead to 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 issue spread.