How to choose a Broker?

broker

The Broker is an intermediary between stock market and trader. The bank, in its turn, is also an intermediary between clients, and performs transactions (buying/selling the currency) as by clients’ requirements. It is true that intermediaries shall be properly chosen, but it doesn’t mean that if the trader found the perfect intermediary, he shall shift on him all his trading responsibilities and errors. First of all, I advise you to read articles of experienced traders and stop thinking that on stock market miracles occur. Once you’re a trader, you are the one who control your capital and your life.

All above mentioned doesn’t mean that a broker must be chosen carelessly. Mean, a good driver shall have a good car.

How to choose a good broker?

A good broker is the one who performs all his duties at the highest level. A brokerage company represents a business partner. There is a long term and short term business – depending on each party’s purpose. We’ll talk about this later.

How to choose a business partner?

In order to choose a good business partner, the following features must be met:

Partner’s reputation: it takes a long time to get a good reputation so the experience of the business partner along years is very important, same as his loyalty to a certain kind of business. All these criteria make the basis of Stability, so the contracts could remain available for long term. That would allow the trader to make long time plans.

Also, the partner’s competence is very important. This includes knowledge, experience, professionalism and the ability to manage all these skills. You can observe the partner’s competence by his employees, by the quality and the volume of provided services to traders. The partner’s services have to be real and transparent, but first of all – the services must be profitable for both parties. So if there is a service, it shall bring profit to both parties: of course that service costs but the price should be balanced and not excessive at all. The price should be proportional to the turnovers (if turnovers are small – the price is big, if the turnovers are big – the price is small). The turnovers increase in time.
If the price is too low, then the partner is not earning money but is wasting them. This is a sign of bad money management and high risk that would affect in the end all the parties of business.

The broker earns money from commissions (spread) and this commission should cover certain costs of the broker. This is a normal thing. A bad thing would be almost without spread, because the costs are not low at all. So it is very important to understand these things before building a business-plan: there are always costs, because good quality services cost a lot of money. Meanly, if there’s anyone who thinks that the broker should work for free, is totally wrong, because there’s “no free lunch”.

So, how to “detect” a good broker?

Considering the expectations of a long term development of the business, a broker should be chosen in the basis of the following:

– Reputation (based on facts not on rumors)

– The employees’ competence

– The volume and the quality of provided services and their correct price (balanced price)

– License (the number of licenses and the regions)

– The real existing offices and their number

– How much years of experience he has in this field? (the brand was built many years, then it is appreciated)

– The development vector (horizontal + vertical extension)

– The quality of services (high standards toward clients’ needs based on business development, not on clients’ emotions)

– Transparency (regulations, offers, conditions)

– The transactions’ processing via phone (it is old fashioned but shows experience)

– The number of partners (this is also about development vector)

– Trading conditions

The trader is also a business partner, so he should be competent as well.  He should know how works the business that he involves-in: he works through the broker that uses bank services. The banks also charge their commissions. So, from this spread a lot of things shall be paid: staff, programs, soft, licenses etc. and it shall bring a part of net profit. Otherwise this business would not have any sense. That’s why first of all you should invest in yourselves to acquire knowledge, then to get involved in this king of business. In respect of the commission, there are 2 variants:

  • The spread includes expenses and profit of partners
  • The spread does not include expenses and profit of partners

In first case might be a balanced fixed spread or sprawling spread (kind of very low spread at first sight, but it gets sprawling in an inopportune moment and becomes the instrument of attraction of incompetent traders). This is most dangerous variant of low spread: 1 point or lower. This is explained by bad risk management of the company or by the intention to earn money from investors’ deposits. The last case is unfortunately very popular: earn faster and close the company (then open back under another name etc.).

That’s why there are so many poor traders. Not because of bad brokers or banks or else, but because of their lazy mind. These traders expect for a miracle from nothing and they don’t understand that while they are waiting for some money to fall down from the sky, some ones will get profit by using their foolish.

Everything gets logical in this world: nothing is by chance. So if you understand the point, start to work right now, get schooled and experienced in this field. Otherwise you’ll always feel like a victim by blaming everybody for your bad chances.

 

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