Forex has been increasing in popularity over recent years, with new technology enabling the public to engage in trading from the comfort of their own homes. To cater for this there is a plethora of brokerage firms vying for the general public’s business. How do you go about choosing the right broker? Here are three essential questions to ask.
1. Are you regulated?
A broker in the UK should be regulated under the auspices of the Financial Conduct Authority (FCA). This is an independent body which regulates financial services carried out within the UK and enforces the regulations set down in the Financial Services and Markets Act 2000. It requires that any broker acting in the UK be regulated, an issue which is important because the foreign exchange market itself is unregulated. To protect yourself and your investment it is important that the broker you select be regulated. If there is a dispute with an unregulated broker you have little or no legal protection. A list of FCA-regulated brokers can be found on their website.
2. How well capitalised are you?
Good capitalisation is essential to minimise risk associated with foreign exchange trading. Those companies which are well capitalised are regarded as more stable and tend to present fewer problems, such as insolvency, than those whose capital is less. You should also ensure that the broker keeps client funds in a separate account to protect yourself against the risk of insolvency. FSA-regulated brokers are legally required to ensure that client funds are segregated. During your research, ask the question as to where client funds are held to reassure yourself.
3) What trading platforms do you offer?
There are many trading platforms available from brokers and choosing one which will suit you and your trading style is a matter of trial and error. However, before you choose, make sure you download the demo version of two or three platforms and use them to simulate real trading. This will enable you to get a ‘feel’ for both the platform itself and trading in general. As a rule, many of the platforms will offer the same features just the graphics, interface and add ons will differ. It is up to you to source one that suits your preferences and trading style. Also ensure that the trading platform you are being offered is free and whether it is available for your mobile phone if that is how you wish to conduct your foreign exchange trading.