Rules for Choosing the Best Forex and CFD Broker

Rules for Choosing the Best Forex and CFD Broker

The Forex market is an international foreign exchange market, where multitudes of various transactions take place on a daily basis. Foreign currency investments on this market may take place through contracts for differences — CFDs. If you want to invest on the Forex market, you cannot do it yourself. You will need an investment account, which you can open with a selected Forex and CFD broker. There are many firms providing such brokerage services in Poland and abroad. Therefore, there will certainly be some doubts as to the selection criteria of a Forex and CFD broker, especially among beginner investors.

Reliability of the Broker’s Activity

Every investor certainly wants to cooperate with professionals in their field — brokers who act in a reliable manner, taking care not only of their own interests, but first and foremost of their clients’ interests. In recent years, certain legal changes have taken place in Poland, as a result of which it was possible to eliminate entities which provided brokerage services on the Forex and CFD market in a dishonest manner. In practice, there is no longer any danger of coming across a broker that will manipulate your positions or prices. As an investor, you can also protect yourself against such situations by picking services of a broker that has immaculate opinion in its industry.

First of all, you need to check whether the broker you have chosen is under the supervision of an external supervisory institution. The activities of Forex and CFD brokers in Poland are regulated by the Polish Financial Supervision Authority. However, even if the broker is not licensed by the PFSA, it does not mean that you should stay away from it. It is possible that it is controlled by an external foreign supervisory institution. The most common foreign brokers one can come across are from the United Kingdom, Switzerland, Australia or Cyprus. As EU Member States, the United Kingdom and Cyprus are simultaneously subject to financial regulations compliant with MiFID. Entities from these countries may carry out brokerage activities in our country without the need to obtain a permit from the Polish Financial Supervision Authority. At the same time, you need to know that they should be licenced by the supervisory authority in the country of their registered office. In Cyprus, it will be a CySEC licence, and in the UK — an FCA licence.

You can check online if the broker you chose is under proper supervision of the regulator in the country where its head office is located and where it is registered.

What is the Leverage Amount?

Leverage allows you to multiply your profits from investments on the Forex and CFD market. Therefore, before choosing a specific broker, check the leverage it offers to its clients. With regard to Forex and CFD brokers from Poland or those supervised by European regulators, everyone must comply with the ESMA guidelines limiting the leverage amount. However, entities operating outside the ESMA jurisdiction, e.g. in Switzerland or Australia, do not have to introduce any leverage limitations.

Costs of Cooperation with a Forex and CFD Broker

Fees and commissions charged by a Forex and CFD broker might not be the most important broker selection criteria, but they should also be taken account of. As a beginner investor, you will certainly want to know how much your cooperation with the broker will cost you. The table of fees published by the broker, e.g. on its website, becomes crucial when comparing various brokerage offers. Use it to check what types of accounts the broker offers, how many instruments will be available for you to invest in and what the amounts of spreads and commissions are. What is also important is the minimum deposit amount and what investment platform will be provided to you by the broker. 

Tom Spiggle
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