Brokers for Beginners
A broker is an individual or firm that facilitates transactions between buyers and sellers in exchange for a commission when the deal is executed. Brokers who act as sellers or buyers become principals to the deal. Nowadays, brokers often package commissions into "spreads" to offer no commission. However, if a broker doesn't charge commissions, their spreads can become too large, which can affect your trading style and make it difficult to trade in the short term.
The best brokers for beginners offer three essential benefits. Firstly, they provide a user-friendly website and an overall trading experience. Secondly, they offer a strong variety of educational materials to help you understand how to use their user-friendly application/website. Thirdly, they offer low commissions and small spreads. Commissions are fees that brokers charge for executing your trades, while spreads are the price difference between your "ask" and "bid" prices. Some brokers have low commissions but large spreads, packaging or hiding those fees in large spreads. High spreads mean that your recently executed trade starts in a negative position.
Not all brokers allow you to trade on any type of trading market. In most cases, every broker specializes in or focuses on one type of market. Therefore, it is important to make sure that the broker you choose offers the ability to trade on the market you are interested in.
Regulated brokers can be located anywhere in the world. In the U.S., brokers must abide by certain rules and regulations in order to "protect" retail traders. Therefore, most U.S. brokers are regulated. However, some traders do not like the restrictions that come with regulated brokers. Regulated brokers have rules and restrictions such as no hedging, no overleveraging, and PDT (pattern day trading). Regulated brokers are regulated and monitored by organizations like the Financial Conduct Authority (FCA), Commodity Futures Trading Commission (CFTC), and National Futures Association (NFA). These organizations constantly monitor regulated brokers to ensure they abide by all regulations and rules, which is why regulated brokers are referred to as "safe" brokers.
Unregulated brokers are not monitored at all. This means they have the ability to take your money and run away with it. Although some unregulated brokers are reputable within the trading community, you still run the risk of losing your money to the broker. However, unregulated brokers can offer things that regulated brokers cannot, such as high leverage, hedging, and lower spreads and commissions. Since being regulated is highly expensive, regulated brokers normally make up that expense by making spreads larger, commissions higher, and swap fees bigger. This can ultimately affect your trading style and overall trades. Unregulated brokers don't have to take on that expense, allowing them to give the trader competitive spreads, low to zero commissions, and low swap fees. This is very attractive to traders as it makes them ultimately more profitable without those fees and factors in play.
Note: Not all brokers or trading platforms are accepted in your state, country, providence, etc. Therefore, it is important to make sure you are always abiding by your laws and regulations. This will also help with filing taxes in the future.
Last modified 5mo ago