You need a broker to place trades
The most important aspect of choosing a broker is to know what happens to your trades.
A-Book vs B-book
Finding a good broker is not as easy as it sounds.
Brokerages can make tons of money betting against their clients. Most brokers use excuses like ‘slippage’, ‘spread spikes’, ‘price gaps’, ... to cover up that trades placed by the customer are actually never put in the forex market, but are instead trading on their own books.
If a client makes a loss in trading, the loss for the client is 100% profit for the B-Book broker.
Stay far away from these practices!
Don’t go for High Leverage
Trading high leverage like 1:500, 1:1000 or even higher is insane.
Experienced traders know this. If a broker advertises high leverage trading possibilities, you’re almost certain he’s going to trade against you.
Watch out for cheap trading
Putting trades in the FX market adds another layer of costs.
The cheapest trade executions usually mean that your trades will not be placed with liquidity providers. Hence the broker doesn’t incur any cost on top.
Avoid Aggressive Marketing
Brokers are not there to give you free money. There’s always a catch!
In most jurisdictions, bonuses are even illegal or frowned upon.
Good brokers don’t have to advertise, they build up a reputation.
Beware of offshore headquarters
There's nothing wrong with offshore brokers. However, beware of brokers that have their headquarters in an offshore jurisdiction.
Financial regulations are created for a reason.
Especially avoid brokers that accept US customers.
Do your own Due Dilligence
Reseach the market.
Brokers must list where they are licensed. Doing some research, you can find out if the company is healthy.
FX is a very capital-intensive business and requires healthy bank accounts.
How do introducing brokers make money?
- An Introducing Broker (IB) can be anyone who introduces clients to a broker. The IB receives a commission payment for their services.
How Do A-Book brokers make money?
- A broker receives price feeds from multiple different Liquidity Providers (LP's) or major banks and distributes the load if necessary.
- These LP’s match the buys with the sells, and the sells with the buys.
- The LP’s business model is to earn on the difference between the buy and the sell. This is called the spread.
- It’s the broker’s job to pool all client’s trades and find the best liquidity in the market. To do so, they can add to the spread or put a fee on top.