Brokers for Beginners
- A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Some Brokers package commissions into “Spreads” (allowing them to offer no commission). Nowadays that is normally what you will see from brokers. Allows be aware that if a Broker doesn’t offer commissions your spreads can become too large which will affect your trading style and ultimately make it very difficult to trade more “short term”
- The best Brokers for beginners offer three essential benefits. The first, and most important, is a user-friendly website and overall trading experience. Second, they provide a strong variety of educational materials to know how to use their user-friendly application/website. Third, offer low commissions and small spreads. Commissions are exactly what it sounds like. For every trade the broker executes for you they charge a commission. Spreads are the price difference between your “Ask” price and your “Bid” price). Spreads are essentially another way Brokers are able to make money off of executed trades. Some brokers will have low commissions but have large spreads. This way they aren’t losing out on commissions rather “packaging” or “hiding” those fees in large spreads. High spreads make it so that your recently executed trade immediately starts in a negative position.
- Not all brokers allow you to trade on any type of Trading Market. In most cases every broker specializes or focuses on one type of market.
- NOTE: It is very important to make sure the broker that you choose offers the ability to trade on the market you are interested in.
- Regulated Brokers are can be located anywhere in the world. Since it was the U.S. that came out with certain rules and regulations in order to “protect” retail traders most U.S. Brokers are regulated. Many traders have different thoughts on Regulated brokers as traders don’t like the restrictions that are put in place.
A few examples of Rules or Restrictions that Regulated Brokers have to abide by would be:
- No Hedging (taking trades in different directions)
- No overleveraging (they can offer low leverage or no leverage accounts)
- PDT (pattern Day Trading)
Regulated Brokers are Regulated and Monitored by Organizations like for example the FCA (Financial Conduct Authority), Commodity Futures Trading Commission (CFTC), and National Futures Association (NFA). These Organizations are constantly monitoring regulated brokers ensuring they are abiding by all regulations and rules this is why Regulated Brokers are referred to as “Safe” Brokers.
- Unregulated brokers are exactly what they sound like. They are the opposite of Regulated brokers. Since Unregulated Brokers aren’t being monitored at all, this means they have the ability to take your money and essentially run away with it. Although there are some Unregulated brokers that are reputable within the trading community. You still run the risk of losing your money to the broker.
- Unregulated Brokers although extremely risky can offer things that Regulated brokers can not.
Examples of these are as follows:
- Leverage is the ability to borrow money from your Broker in order to multiply your buying power. That means if you have a dollar and you have 100x leverage offered from your broker that would give you the ability to get 100x your 1 dollar in order to maximize your gains. Unregulated brokers can offer up to 1000x leverage.
- The ability to hedge in trading can help you or it can hurt you. Hedging: of course refers to the ability to have two or more trades going in opposite directionsIf you have two trades going opposite ways in trading and you are experienced in Hedging you can use that to help you mitigate losses or if you are inexperienced to Hedging this can cause massive losses.
Generally Lower Spreads and lower Commissions
- Since being regulated is highly expensive. Regulated brokers normally have to make up that expense by making spreads larger, commissions higher and swap fees bigger. That can ultimately affect your trading style and overall trades. Unregulated brokers don’t have to take on that expense which allows them to give the Trader competitive spreads, low to zero commissions and low swap fees. This is very attractive to Traders as this makes you ultimately more profitable without those fees and factors in play.
Not all brokers or trading platforms are accepted in your state, country, providence etc. It It is always important to make sure you are always abiding by your laws and regulations. This will also help with filing taxes in future.