How To Pick The Best Forex Brokers

In this video, I’m going to dive into an area of getting involved in investments where typically most of the scamming happens and most of the fraud happens. This is an area where I have actually fallen victim to being scammed. I lost tons of money a couple of years ago solely due to my negligence regarding this exact topic that we’re going to be covering today. Let’s get right to it.

Welcome! If you’re new to the channel, my name is Matt Jimenez. I’m an entrepreneur who has worked with the greatest minds in finance over the last several years, and I’m here to share everything they have taught me. Today, I want to give you everything you need to know in the shortest period of time about brokers. What is a broker? How do they work? And what do you need to look for to find the broker that suits you best? Again, none of this is investing advice, but it is for your entertainment and information.

Anyone looking to get involved in markets will have to go through a period where they’re looking for a broker that will steward their money. So first and foremost, what is a broker? To put it as simply as possible, a broker is the person in the middle that will put your order straight through to the marketplace. You will need a broker when it comes to investing in anything over-the-counter, such as equities, commodities, and in this instance, foreign exchange markets. Yes, even cryptocurrencies require a brokerage, also known as an exchange. You have Coinbase and a bunch of others, but I don’t want to bore you with a lot of names. The whole purpose of this is to know how they function and which one is right for you. In this case, we’re speaking solely about foreign exchange brokers.

There are two different types of brokers you need to know about when it comes to the foreign exchange market. These two brokers operate in a multitude of different ways, which I will cover in just a bit. The first type I’d like to talk about is the dealing desk broker, also known as the market makers. On the flip side, you have the no-deal desk brokers, which operate in two ways: straight-through processing (STP) brokers plus ECN or just plain ECN brokers. If you don’t know, ECN stands for electronic communications network.

I made this illustration to show you what the ECN network looks like. Essentially, it is a plethora of different banks, brokerages, funds, mutual funds, and then you, sitting on the sidelines. This communication network makes up the large liquidity pool which your broker will have access to. This is why you will always need a broker because you cannot access this liquidity pool on your own as an individual.

Now that you have a general understanding of the network and why these brokers are involved to get your orders in, let’s talk about the different ways these brokers work and facilitate their actions inside this network. I made this pretty little chart to help illustrate what I’m trying to explain. Traders place an order on their laptop that goes into the trading platform, well known as MT4, MT5, or TradingView, or any other trading platforms where traders can execute trades. This then goes straight to the dealing desk, also known as your broker.

Typically, the straight-through dealing desk doesn’t always put your order straight into the liquidity pool of this network. If you’re a big trader and you’re quite profitable, typically, you’re not a single individual. You’re running something on a much larger scale, or maybe you are an individual who is very talented and has a lot of money. Then your order will most likely go straight through. But if you’re just an average Joe making small trades, instead of going straight through, you’ll be matched with other clients.

You guys have all heard the phrase “someone else’s loss is someone else’s profit,” and vice versa. That’s exactly what this means. Essentially, it’s just someone making decisions on what to do with your order. If it’s small, you’ll probably be paired with other retail traders, and you guys will trade off vice versa. If you’re large enough and profitable, you’ll likely have straight-through access to the liquidity pool. This is also known as an A Book broker.

Now, we also have a B Book broker, and this one typically has a bad reputation. People say, “Oh, everything’s manipulated, they’re squeezing your orders out, and they’re screwing you over.” Unfortunately, yes, there are cases where this happens. But again, these are large institutions. They’re not here to try and take someone’s 100 bucks or 50 bucks on your trade by creating a swing in the market that moves trillions of dollars just to stop you out with your 50 bucks. I’m not saying that’s impossible, but it’s not probable. Why would someone spend a ton of money to collect 20 bucks? Typically, B Book brokers get this reputation because they take the opposite positions of your trade. So if I put in a buy order, they would put in a sell order, or vice versa.

I put in a sell order, they put in a buy order. Essentially, one makes money while the other loses. Your profit is their loss, or their loss is your profit.

Then you have the no-deal desk broker. I made this graph to help illustrate how this exactly works. A trader will put an order into the trading platform again, like MT4, MT5, TradingView, and so forth, and then it goes straight through to the ECN, which is the giant liquidity pool that we talked about earlier in this video. No dealing desks typically have no human or AI intervention like other brokers that will start matching orders so they don’t have to go to the liquidity pool. The no dealing desk has no intervention, so it goes straight through to that network we were speaking about earlier.

Now that you understand A Book brokers, B Book brokers, straight-through processing, and dealing desk and no dealing desk brokers, you can choose which one sounds a bit more ethical. Again, I’m not here to tell you which to go with. I will never tell you which to go with, and I will never tell you what to do with your money. I’m displaying information for you to be able to make that decision and avoid taking harsh losses like myself. I lost all my savings last year in a sour broker, and I want to tell you guys it’s not a good feeling when you did absolutely nothing wrong with your money. The only thing you did wrong was the lack of investigation in putting your money with a broker to custodial all of your funds. This information will help you decide which one is more ethical.

Now I’d like to talk about which one is best for you. Considering everything that I put here today, I’m going to go through a list of eight things that I put together that I think are essential to ask and investigate before doing any type of work or business with a broker.

So, the eight things that I look for:

  1. Are they regulated? Again, this is a broad spectrum because being regulated doesn’t always mean it is the only choice. I’ve worked with unregulated brokers that were completely ethical and were able to fulfill deposits and withdrawals, and they’ve operated for a very long time. To get regulated, there are tons of legalities that go into it, especially when dealing with US clients. What I have seen, and I’m not telling anyone to do this, is people opening up other accounts with some type of tie back to another foreign country that the broker does business with. It’s really hard to work with US clients because the US will protect US residents from taking on large amounts of leverage. One reason is they don’t want people losing money, or the pessimistic view would say they don’t want anyone to get rich. Again, leverage is a double-sided sword. While you can make loads of money with it, you can also lose everything.
  2. Execution speeds of getting orders filled. This is super important because, depending on how your broker operates, you may have missed the price. Let’s say you put an order in, and the exchange rate has changed; you will get a new quote. Now, that’s not a big deal; it’s very typical and can happen. But also, you could have slippage. So, it’s important to understand how fast your broker can execute the quote you saw when you hit the trade.
  3. Leverage. Again, I spoke briefly. Leverage is important in terms of what kind of strategy you have. Some strategies use leverage to get an edge on performance for your portfolio. But again, leverage is a double-edged sword. Typically, I will say this on algorithmic trading software: you normally want to have a leverage of 1 to 200. Again, this is not financial advice; this is just from my own personal experience and from other people I’ve spoken with. You want the higher leverage because these softwares move at a very high pace and take on a lot of positions at one time. So, having that extra leverage and not getting margin calls is essential to how well the bot can actually perform.
  4. Next on my list is how easy it is to deposit and withdraw. Back when I got scammed, it was impossible to withdraw but too easy to deposit. That’s a red flag. So, that’s another thing you want to look at. If it’s as easy as just clicking a button to deposit, but in order to withdraw they want everything from you, I would steer clear of doing any type of business with that kind of broker.
  5. The next thing I like to look at is live chats. What is the support like? This is someone that is stewarding your money. It’s very important that the person holding your money, the custodial service of your money, is transparent and able to communicate with you. Whether that’s through email, some type of live chat online, or even call support, it would be the best route for you and your money. Not all brokers offer this, but most will offer some type of live chat, which is very important when you want to get information on your money and what’s going on with particular trades, withdrawals, or deposits. It’s very important that they’re able to speak with you at almost any given moment.
  6. The next thing I want to talk about is spreads. A spread is basically the quote price and the difference between the broker’s quote. That is where the broker typically makes his money. Since there are tons of brokers out there, there is so much competition in the marketplace to squeeze for the lowest spreads possible to gain the most amount of business. Their job is to make money on volume rather than having large spreads and making up in lump sums. So, if they could have a hundred people paying really small spreads or rather a million people paying really small spreads, they’ll do good. Again, look for spreads. The lowest spread doesn’t always mean the best. You have all these other factors to weigh as well, but you do want to look at the spreads and if they’re competitive because you don’t want to get smacked around on all the money spent just trying to take your trades.
  7. The next thing on my list is commission and swap. This is again how the broker gets paid. Commissions are typically upfront, baked into the spreads, or something on the back end that I may not be aware of. This is why I’m ever-learning about this topic. Swap is how much they’ll be charging you on an overnight rate. This is not something to really worry about because typically it’s very small, but in the case that you’re moving large sums of money, swap can add up. Depending on the broker and how their swap fees are, you could get burned.
  8. The last thing I like to look at is the selection of markets. I find this very important, especially when you’re using algorithmic trading software or a very diverse trading strategy, because you want someone that will offer the assets you’re looking to trade. I know a lot of brokers, and I don’t want to name-drop because I’m not here to promote anyone or talk bad about anyone, but some brokers will only list very limited amounts of currencies or indices, while others will have tons of exotic currencies that you could typically dabble in that have different volumes. It’s important when you’re getting very diverse and niched down in your trading strategy to find what volume trades best for you and which one you are most profitable with. The same thing goes for the software. With the software, you can turn on and off different pairs considering their profitability. That way, if you have a pair that does really well, you can double down on its risk on that pair and then maybe take away risk on a pair that it doesn’t do well with. Again, I will state this is not advice; this is for your entertainment. But I typically like to look for a very diverse basket of currency. I like to look for commodities, indices, and lastly, cryptocurrencies. While I may not be actively trading cryptocurrencies or using software to actively trade them all the time, I do invest in cryptocurrencies. These are more long-term holds, and I don’t hold my funds with the brokerage. I typically have an offline wallet to ensure security, which I highly suggest you do the same if you’re invested in any type of cryptocurrencies.

So, there you go. That’s my list that I look for, and now you have a great understanding of how brokers work. If you have any questions on brokers, leave a comment down below. More importantly, if you want to know more about brokers and have an algorithm running for yourself, hit the link down below. It will bring you to the team, and they’ll answer any questions you have.

Like always, my friends, safe trading and peace.Please visit How To Pick The Best Forex Brokers to watch the full video on YouTube!

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