A broker is a legal entity, an intermediary between a buyer and a seller. The main task of a broker is to reach an agreement on a sale and purchase transaction between the parties.
The services of brokers can be used by both companies and individual investors.
Before talking about the main criteria for choosing a broker, it is worth noting the difference between a dealing center and a broker. Often people make the mistake of assuming that these two concepts are the same.
A dealing center is a legal entity that allows traders to conduct transactions for the purchase and sale of currencies, but in a small amount. Also, dealing centers never enter the foreign market.
A brokerage company is also a legal entity that allows a trader to trade on the foreign exchange market, and on any foreign exchange market.
Those. one important distinguishing feature of a broker is access to a foreign market.
According to Russian law, only a legal entity can trade on the foreign exchange market, so one way or another, if you want to make transactions on the foreign exchange market, you will have to contact either a dealing center or a brokerage company. Where exactly is a matter of preference.
Now consider the criteria for this choice regarding the brokerage company. Main criteria:
- reputation
- reliability
- trading conditions
- warranty
- order execution
Let’s consider in order.
Reputation is a rather broad concept. Here it is worth paying attention to the main components of reputation – the number of years worked to provide this service (preferably at least 3 years); the number of regular customers, the more customers a given broker serves, the more money he has, which means that he is more likely to return the money you earn (you can find out the number of accounts registered with a broker either in the support service, or by phone, or simply look at the broker’s data; the quality of the support service, they should respond to any of your questions in a timely and accurate manner.
Of course, you can pay attention to various awards, ratings, but this, as a rule, is only a financial issue, so you should not rely on this in the first place. You can pay attention to independent forums where traders leave their feedback on certain brokers. But you need to pay attention only to objective and justified claims or praises.
Reliability. First of all, reliability must be determined by the legal side, i.e. the brokerage company must be licensed and supervised by a regulatory body. A brokerage company must have an insurance system and a risk management system. All legal documents as well as financial statements must be transparent.
As a rule, the vast majority of brokerage companies meet these requirements, but the risk is still high. Therefore, to everything else, it is worth adding a mandatory work history. The company must earn the aforementioned reputation in order to gain great advantages over newcomers.
Trade conditions or terms of cooperation. These include: the accuracy of data on quotes, an acceptable level of spreads, guaranteed execution of orders, the availability of software (a modern trading platform), the provision of the required information, etc.
You have every right to demand from the broker documents confirming the legality of quotes retransmission. Russian stock exchanges, as a rule, relay quotes from European brokers, and those, in turn, directly from information sources (for example, Dow Jones). Quite often, brokers come across who simply steal data on quotes, so you should think about the integrity of such a company and the risk of cooperation with it.
Warranty. Brokerage companies themselves are interested in resolving this issue. Different countries deal with this issue in different ways. In Russia, brokerage companies have solved this issue through insurance. Those. in case of an unexpected loss of your funds, the insurance companies will return the money to you. Be sure to pay attention to the subtleties of this issue in the contract that you will sign.
Execution of orders. A very important question, since the outcome of the transaction depends on the timeliness of the execution of orders. Brokerage companies perform 2 different types of order execution – slippage and fixed price. The most reliable are brokers that work at fixed prices.
To better understand the essence, let’s take an example. You place an order at level 2, but the interest rate data was lower, and the price instantly fell to 1.7. If you worked with brokers on the slippage option, you lost 300 points, if on the fixed price option, the order execution worked on 1.9 and you lost only 100.
