2 weeks ago Last updated September 6th, 2021 1,042 Reads share

How to Choose A Broker

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Choosing a broker to handle your financial trading can be a tricky business. Brokers are a necessary component in the world of financial trading. With millions of traders connected to the financial markets across the globe and with the virtual nature of the FX and CFD markets, all traders can’t gather in a single venue to conduct trading. This is why the trading process has been decentralized through brokers. The essence is to bring access to the market to the doorstep of every participant.

Brokers play multiple roles in the financial market. That is why the decision process in choosing a broker is not one to be taken lightly.

 

What Is a Broker?

In simple language, a broker is someone or an entity that facilitates an event, someone who makes things happen. A broker is an intermediary, an enabler.

In the financial markets, brokers facilitate transactions between buyers and sellers. But the financial broker’s job does not end there.

  • The FX/CFD broker is a company that provides access to the financial markets by providing the client with a trading platform.
  • The broker acts as a custodian of the client’s trading capital.
  • These days, the brokers have even gone further to become educators, providing some background knowledge about the trading platforms (such as the MT5), the trading process, contract specifications and other knowledge required to trade the markets smoothly.
  • The broker can also provide the liquidity needed for instant execution of trade orders. In this role, the broker acts as a market maker.

 

What is Traded on the MT5 Platform?

What can you trade on a typical trading platform? It is essential to mention that the assets that are traded on the platform described here are Contracts-for-Difference (CFD) assets. The term “Contracts for Difference” literally means trading contracts based on price differences between the start and the end of the trade.

All assets traded on the MT5 platform are traded as contracts. The direction and difference between the entry price and exit price determine the profits and losses. No physical assets change hands, so this is not like conventional stock trading, where you get to keep the stocks purchased and sell them whenever you want. In spot trading of CFDs, you only own the contracts. These contracts either gain value if the trade goes in the direction you chose, or they can dwindle in value if the position goes contrary to your trade direction.

These contracts are leveraged, which means the trader only needs to commit a portion of the capital required to set up a contract. The rest of the required capital comes from the broker in the form of leverage. If the contract sold or purchased is losing value, the trader must commit more money to collateralize the position and sustain it. Usually, a broker would issue a notice to this effect known as a margin call.

So what CFDs are available for trading on an MT5 platform?

  • Currencies (forex)
  • Stocks
  • Indices
  • Commodities
  • Cryptocurrencies

Each asset class has its own contract specifications and trading conditions. You are required to know the trading conditions attached to the asset class whose contracts-for-difference you will be trading.

 

Signatures of Good and Bad Brokers

Sometimes, it is not a question of whether a broker is good or bad but simply a matter of preference. A broker may offer something that works for one trader and does not particularly tickle another. However, there are absolute features that a good broker should have. You can tell a good broker from a bad broker by simply looking out for their signatures.

 

1. Regulation

A good broker should submit itself to regulation. Regulation is all about protecting the client and playing by the rules. Good brokers will want to keep their clients happy and will do what they can to ensure that the trading environment is kept clean and transparent for all participants. Bad brokers do not care to submit to regulation and are more interested in engaging in practices that rob their clients. Regulation also provides insurance cover for traders if the brokerage is ever to go bankrupt.

 

2. Suitable Trading Platforms

A good broker should offer you a trading platform that works well for beginners because of its simplicity and ease of use. Brokers who never offered the MT5 are now being forced to do so, in an attempt to listen to their clients. Bad brokers end up offering their clients platforms that make their trading adventure a nightmare.

 

3. Good Trading Conditions

Would you consider a broker that is always requoting you at every turn a good broker? How about those brokers who offer their clients deplorable trading conditions? A good broker provides clients the chance of choosing between pure retail trading conditions and a professional setup. The trader can then select the account types and trading conditions they find suited to their needs.

 

4. Expanded Payment Channels

All the trader’s effort comes to nothing if it has to take an arm and a leg to deposit funds or withdraw trading profits. Good brokers understand that regional differences could make a particular payment method unavailable to users from such regions. By providing an expanded payment system, a good broker would have put an accommodative system for its clients.

 

5. Good Customer Service

A good and responsive customer service, with reachable communication channels, is the hallmark of every good broker.

 

Special Features

One of the features to note has to do with the kinds of accounts that are offered to traders. Brokers that provide retail trading conditions charge a fixed spread on trades, commission-free. Commissions on trades are things you see with professional trading environments.

Exness provides both conditions, and it is reflected in their MT5 account types. The two types of accounts are the Standard and Professional accounts (Raw Spread, Pro and Zero accounts). The Standard account features spreads that start at 0.3 pips, with a minimum deposit that depends on the trader’s payment channel.

The Professional account has three subtypes. Each account subtype has a minimum deposit of $500. Only the Pro account comes with a minimum spread, and this is set to 0.1. The Raw and Zero accounts do not charge spreads on all trades. Rather commissions are charged, with the Raw account charging a flat commission for each executed trade and the Raw account charging commissions on trade entry and exit from a minimum of $3.50.

It would be best if you also looked at the tools offered. The MT5 provides some special tools such as:

  1. a) Hedging: ability to hold buy and sell positions simultaneously on the same asset.
  2. b) Expanded time frames from 9 in the MT4 to 21.
  3. c) An inbuilt news bar and economic calendar for fundamental analysis.
  4. d) An expanded number of indicators and graphical objects.
  5. e) A new Metaquotes Language that is more professional and allows for a more robust coding experience.
  6. f) A 128-bit platform that is faster, has fewer bugs and comes with a Level II market depth feature.

 

FAQ

Here are some of the Frequently Asked Questions that would-be traders have about forex trading.

 

Q: What is forex trading?

Answer:

Forex trading is simply the practice of exchanging one currency for another to profit from the constantly changing exchange rate differentials between both currencies.

 

Q: What is the MT5?

Answer:

The MT5 stands for MetaTrader 5. It is the fifth in the series of the MetaTrader retail trading platforms produced by Metaquotes Inc. It comes with an enhanced asset index, a redesigned navigation, order book, additional time frames and many more features that give it some level of superiority over the MT4.

 

Q: Do I own the currencies I purchase in forex trading?

Answer:

What you trade on the MT5 and other forex platforms are contracts on the listed assets. You own the contracts, and you can make money if the purchased contract’s price rises/sold contract’s price falls. If the purchased contract’s price drops or the sold contract’s price rises, you lose money.

 

Q: Do I only make money when the exchange rate goes up?

Answer:

Forex and CFD trading is a bi-directional trade process. You can profit from rising prices if you Buy the CFD contract, or you can benefit from falling prices if you Sell the CFD contract. Your job is to predict when prices will rise or fall and use the appropriate trade orders to give you the required outcomes.

Dmitry Kozlov

Dmitry Kozlov

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