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It is more likely that new traders; rather than experiencedtraders; will get caught out by bad Forex brokers. This is because they have noexperience in dealing with Forex brokers and in one sense; they dont reallyknow what they are looking for. So rather than taking time to find out, theyget dragged in by phrases such as no commission or fixed spreads and opentheir first Forex trading account. However, everything is not what it seems inthis business so a bit of research goes a long way if you want to use your hardearned cash to trade the currency markets. To make it easier, below are a fewpoints new traders need to consider in their search for reliable Forex brokers.
Market makers
This is not necessarily a bad thing but a lot of brokers usethis as a strategy to gain extra profits. Here is a short explanation:
All Forex brokers receive their spread costs from theInterbank market which is basically a selection of top banks and hedge fundswho have the power to do this. This rate can be 1 pip (for example) dependingon the currency pair. The brokers then take this 1 pip and mark it up on thebid and the ask to then supply it to traders on their trading platform at 2pips. So, even though the official rate is 1 pip the customer always pays anextra pip within their Forex trading. This is not illegal but some brokersreally take this to the next level and charge extortionate prices for simpletrades. So, the market maker part literally means that the brokers make theirown markets. It is as if you are trading in their own financial market wherethey are in charge of market prices when realistically, they are merely are-seller of those prices. It would be wrong to get put off by this as somebrokers really do operate this function humanely, but it would be worth beingcautious throughout your search.
Promising sales techniques
The worst mistake you can make is to be sucked in by clevermarketing and sales strategies that brokers throw in your face. These includedpromises of making loads of money because they are the best in the market or apromise of leading market spreads when in fact, they can be changed by thebroker at any time. Once you have signed up and the broker goes quiet, you knowyou might be in trouble.
The fact is that your success in the markets completelydepends on you and your own standard of Forex trading. If you are a world classtrader, you will succeed. If you are not, you wont. It doesnt matter how muchmoney their other customers have earned or how much they paid out in profitlast month. If your strategies dont work, you will be giving money to them.
In summary, it pays to be just a little careful whenchoosing a broker for what could potentially be the best job you have ever had.But, if you are too eager to get started with no prior knowledge of themistakes you could make then you may be swallowing a lot more than you couldchew. Do yourself a favour and protect your money by giving it to reliablebrokers only.
