Previously, we looked at some things to look into for choosing a broker and if you need a broker when it comes to trading FOREX. Here, we'll look into some of the questions you should ask your broker before you start with them. Knowing key details about your broker will affect your trading and profits. You can review Apiary Fund’s “creating a trading business” practices that go along with choosing a broker in their 13th education course. This can further help the profits and how to take in your profits from your broker. So, when picking a broker to trade with, ask these questions:
“What Do You Add to the Spreads?”
Trading is all about money, for both you and the broker. The most common way the brokers make profit is through the spread. All FOREX pairs have a spread and depending on the broker, the spread can differ. So, “What do you add to the spreads?” is a great question to ask. Does you broker add a flat 1 pip to everything or is it more of a 10% of the base spread? Knowing what your broker adds to the spread and what their average spread is can make a difference between one broker or another. One thing you can do is compare average spread numbers of the broker you’re looking into and review Apiary Fund’s spreads on Alveo. Apiary Fund doesn’t add to the spread, so it can be a good comparison point on your potential broker.
What Other Ways Does Your Broker Make Money?
Some will charge you a flat rate per trade on top of adding to the spread making it so you need to close for more profit for you to actually SEE some profit. Other brokers will take a small percentage of each trade based on the original purchase or close price. Some brokers charge a monthly service fee. Regardless of how your broker is making money, it's important to know how and how much so you can account for that in your trading. Nothing can hurt more than thinking you had a profitable month just to have your broker tack on all these charges at the end and you actually ended at a loss.
What Platforms Is Your Broker Compatible with?
This is something Apiary Fund reviewed in the “What is the best FOREX platform?” article. One of the first points brought about in that article relates strongly to this article. That is, if you have a platform already chosen that you want to use, look for brokers that use that platform; if you have a broker chosen, look at what platforms they connect with. Some traders know what platform they plan on using for their trading. If you do too, great! Odds are that's because you know how to use the platform's functions and it has all that you need. If that’s the case, you’ll need to ask if your broker allows for you to use that platform or what switch you may need to make.
“What Is the Minimum to Open an Account?”
The best thing about FOREX is that you can start with little funds to trade. While you can start with as little as $50 at times, that isn’t always the case with brokers. If you're looking at a big broker, your $50 account isn’t going to make an impact on them and they may have a $1000 or more starting requirement. Other, more local or beginning brokers will allow that $50 account to help you get started. Know how much you have to invest with and look for a broker that has a minimum less than that. Going for a big-time broker isn’t always the best. They usually have higher transaction costs, more fees, and require more down to cover that when a smaller broker will give you better prices so you can make more profits.
“What Leverage Do You Offer?”
With the knowledge that $50 can start a trading account, the realization that the extremely minute changes that FOREX deals with won’t do much with $50. However, due to leverage, that $50 could be used to trade $2,500. While leverage seems great in that your little deposit can be used in a much larger trade to make much more profit, it can also be used to lose a lot. Part of knowing your leverage is knowing if your broker has a margin call to prevent you from losing everything and more.
All in all, the questions Apiary Fund recommends reviewing with a perspective broker are:
- “What is my minimum account balance required to be?”
- “What will my leverage be on my account and is there a margin call?”
- “What do you charge for spread?”
- “What other fees will I encounter in my trading?”
- “What platform(s) can I use if I decide to trade with you?”
Of course there are countless questions you can ask. It’s your money as risk. The last thing you should have to worry about when you’re looking to trade is a scam. Always make sure your broker is reputable and registered with the appropriate regulatory bodies. And always make sure you're comfortable with where you're putting your money. These questions just outline some of the most important things to consider when choosing a broker with whom to trade. The "Choosing a broker” article, which you can read here, has a few other details to consider about brokers.