How to choose a broker in the USA
The field of investment and finance in the U.S. is very specific. The country has many exchanges with annual trading volumes of tens of trillions of dollars, where investors from all over the world trade. On the other hand, dealers are strictly monitored by regulators, who fine and revoke licenses for violations of established requirements.
Specifics of Trading in the U.S.
Trading is based on the standard scheme: a client registers, adds funds to his account, and places orders through the trading terminal. All client accounts must be verified. A trader must provide:
- a copy of an ID (passport, driver’s license or other document);
- a copy of a document confirming the address of residence (telephone or utility bill, bank statement or other).
Advantages and disadvantages
It is worth opening an account with a U.S. Forex dealer for a number of reasons:
- Protection from regulators. If the account is blocked or the profit is wrongfully written off, the trader can contact the CFTC or the NFA. Representatives from the organization will thoroughly investigate the situation.
- Availability of information. The broker honestly indicates what spreads work and what commissions apply.
- Brokers provide weekly and monthly reports on transactions, which allows you to quickly prevent manipulation of quotes.
- Good training programs.
American brokers have a number of disadvantages:
- Increased user identification requirements. The client should be ready to send copies of his documents by mail. Also, the dealer can require proof of the legal origin of funds.
- High spreads. The difference in the buy and sell prices reaches 2-3 pips for popular pairs. For unpopular pairs it is 40-50 pips. Low spreads as low as 0.8 pips are a rarity.
- Additional Commissions. American brokers can charge for trading operations, while the reimbursement of the account replenishment fee is available only for a certain turnover.
- Limitations of leverage.
- High requirements for the minimum deposit.
- No statutory compensation for customers in case of bankruptcy.
Financial regulators in USA
The NFA, a non-profit association of Forex dealers, regulates the Forex market. It was founded in 1982 as an independent regulator in the field of derivative financial products. The NFA is funded by its members and issues, among other things, licenses to provide services in the field of Forex (RFED). Every Forex broker who provides services to U.S. residents must be a member of the NFA. There is also the CFTC — a government commission, which is not directly involved in the supervision of the Forex dealers. But the CFTC can issue injunctions to the NFA in order to protect the interests of investors from abuse.
How to choose a US Forex broker
Even a beginner can start earning on Forex, if he chooses the right broker. Therefore, it is necessary to initially understand which platform to start interacting with.
Unfortunately, not all brokers presented on the Internet are honest. Many of them offer to take advantage of their services, but their actions lead the beginner to the loss of the starting capital. Beginner traders should learn to identify such abusers. A really good broker is ready to offer:
- availability of a forex broker license;
- minimum commissions;
- a lot of experience in providing such services.
Every reliable broker is required to have a license from the financial regulators. This documentation guarantees the safety of deposited money, as well as its return in case of the company’s bankruptcy.
When a beginner has established that the broker has official permission, it remains to choose a suitable company. To do this, you should pay attention to a few basic trading conditions:
- Commission and spread. Any broker has the right to charge the user a commission for providing their services. Money is withheld for the spread or transaction made. The spread is the difference in the value of currency pairs. It takes into account both long and short positions. The lower it is, the better.
- Type of accounts. Most of reputable companies will offer two types of accounts — professional and standard. In the first case, they hold a constant or variable spread. In the second one — the minimum spread and constant commission. Accordingly, for a beginner who is just making his first steps in trading, it is better to choose a standard account. But, if a user is ready to invest a large sum at once, the professional version is more suitable.
- Leverage and margin. Both terms refer to crediting by a broker. Leverage allows a client to lend finances. Margin is funds that have already been borrowed from the broker. Strange as it may seem, but getting a loan from a broker is necessary in any case. Even having on the account, for example, 10,000 dollars, in a day, when changing the rate in the necessary direction by 30 points, the client will earn only 7 dollars. Leverage, on the other hand, allows receiving more income with a much smaller amount on the account.
- The best trading platform. Meta Trade 4 is officially recognized as the best trading platform nowadays. It is simple, understandable and convenient tool. The platform was created on the basis of MQL4 programming language. It is the best language for the implementation of working tools used in Forex.
- Financial instruments. The more of them, the higher the probability to find a suitable option, start earning faster and more. The best brokers have up to 50 currency pairs. In addition, access to trade metals, raw materials, stocks, etc.
- Speed of transactions. Forex is always in motion. It practically never freezes. Correspondingly, prices are always changing their values. Any deal requires a certain time for conclusion. The longer it is, the more considerable income will change. The waiting time at the best brokers takes only 6 ms.
- Support service. Any self-respecting broker is obliged to offer the best service to its clients. Sometimes there are situations that can’t be solved by any means, except contacting the support service. And it must be always available, respond quickly and stay in touch.
- Solution of disputable situations. A reliable broker always offers its clients a strict regulation of actions in case of disputable situations. Thanks to it, a client is protected not only by the company, but also by regulatory bodies.
- Account replenishment. A reliable broker offers a lot of different methods of depositing funds to the internal account. These are different bank cards, payment systems, and bank transfers.
- Money withdrawal options. As in the case with depositing, a reliable broker must have an opportunity to withdraw by any means. The most widespread is a bank transfer. But in some parts of the world it is difficult to use. That is why one chooses a broker with a wide variety of withdrawal options — bank cards, electronic wallets.
What should be a reliable Forex strategy?
A good trading strategy has a number of qualities. It is easy to use. It consists of a few elements. Its components do not change their indications with time. What other criteria for assessing a trading system reliability exist?
- Simplicity. The rules of a quality trading system should be so simple that they can fit on a piece of paper, the size of a matchbox. If your trading strategy has a whole set of conditions, consisting of 5-10 indicators, it cannot be called simple. Choose trading systems consisting of 2-3 indicators or working on a «clean» chart. The fewer rules you have to remember, the more likely you will not make a mistake. Practice shows that the most reliable Forex strategies are usually the simplest.
- Ambiguity. It is unacceptable to use in your work the trading systems, which imply a double interpretation of the readings. As an example, you can take ambiguous graphical figures with vague rules of their formation. In such trading systems there is a high probability of subjective interpretation of signals. Different traders will see different information on the same chart. However, they are guided by the same principles, regulated by the trading system. If the signals are ambiguous, even an initially reliable Forex strategy will give different profitability figures for different traders.
- Stability. Stability is one of the main criteria for evaluating trading systems on the foreign exchange market. To evaluate a strategy according to this parameter, you should either test it on history or on a demo account. If a trading system brings up to 50-100% profit per month during a year, and then the same amount of losses, you should not use it in real practice. A reliable Forex strategy does not allow for significant fluctuations between profitable and losing periods.
- Evaluation of financial performance. The main indicator of a strategy’s reliability is not its profitability, but the stability of financial indicators. To evaluate it, you need to look at the system’s performance for at least a year. This is the time interval, which is enough for unprofitable trading methods to show their failure.