Why Choosing Your Broker Carefully Is Crucial
This is an extremely crucial topic due to the simple fact that when we deposit funds into our brokerage account, we are putting our trust in them.
There are various brokers you can choose for spread betting or CFD services with. Please bear in mind that you are putting your trust in your broker by depositing your funds into your brokerage account.
There are a few reasons why it is important to choose your broker carefully, and I will thoroughly explain them now.
ENSURE YOUR BROKER IS REGULATED
If you are situated in the UK (where the majority of our current members are from) it is important to ensure the Financial Conduct Authority regulates your broker. This certifies the broker, and it even protects your capital in the long run in case of any futuristic events that may have an impact on the broker. In Q1 of 2015, the Dollar against the Swiss Franc plummeted 900+ points in a space of a day, which actually took out most bottom-end brokers, especially the ones who are not regulated.
You may be thinking how this affects yourself? Well if your broker is not regulated and they are out of business, they are not liable to pay out your funds that you have deposited into their broker. Meaning you will not be able to retrieve your deposited funds.
(I mean it’s the same with retail banks, before you open up your account they inform you that they can only cover you for £75,000 or whatever the amount is, if the bank goes under. No-one ever reads the fine print though anyways.)
As an experienced trader I am aware that the retail broker profits from my deposits, the spreads I generate from my trades and a few other methods, which is good because to understand the brokerage world means you understand that it is a business. With that being said, the fact that the broker makes a profit from my trades (even when they are winning trades) is good, and keeps a cool balance over time.
Choose a broker that has the longest history of spread betting or CFD trading service. These brokers are normally the ones with the cheapest spread offers also (which is also something to take into consideration).
If you are based in the UK, ensure the Financial Conduct Authority (FCA) regulates your broker before making the decision to deposit funds into your brokerage account for your own financial safety.