Selecting A Right Forex Broker – A Dynamic Activity
Whether you are a retail or small institutional forex trader, we all need to trade through a forex brokerage firm. The bigger you are the closer you move to the major market Forex broker scam participants – banks, mutual funds, hedge funds, large investment firms. They take up about 75% of the forex market capitalization. Some banks could be brokers themselves. The remaining 25% are individual traders like you and me, and small trading firms.
Selecting a right forex broker is not a static activity. It is a dynamic one depending on one or more of the following factors:
-Regulated or non-regulated forex brokers.
-What stage of your trading career you are in. You trade for your own money or manage other people’s money as well.
-Amount of your trading capital.
-Services of a particular forex broker that address your requirements for trading.
-Tax implications if you open trading account with a broker domiciled in U.S. or U.K. or Switzerland or tax haven countries like Hong Kong, Singapore, British Virgin Island, Bermuda, Cyprus, so on.
-Changes of the industry regulations. For example, a new leverage of 50:1 (the old one was 100:1) imposed on U.S. based forex brokers effective on October 18, 2010 has already impacted on traders having accounts with them.
Unlike the stock and commodity markets, the forex market is loosely regulated. Regulation is voluntary rather compulsory. Brokers that choose to be regulated hopefully luring in more clients opening accounts with them. Having your fund deposited in a regulated forex broker certainly enhances the chance of your fund safety. Details of this issue are discussed in the section ‘Safety of Your Funds’.
If you’ve just started out or are exploring a forex trading career, there are many choices of brokerage firms out there for you today. Your objective in this stage is probably to test the water. You could deposit a couple of hundred or thousand dollars. This is a relatively small amount of trading capital. However, when you progress with your trading career, tens of thousands or even hundreds of thousands or millions dollars are large amounts of money, your most concern would be the safety of your fund.
On the other front, some individual traders and trading firms are concerned about minimizing tax expenses, they may choose to open accounts with a particular country domiciled broker for the tax purposes. At this point in time, U.K and Switzerland based brokers are probably popular choices because these countries are tax havens as well as having well established regulatory bodies for the forex market. Other Caribbean tax haven countries like Anguilla, Bahamas, Barbados, Bermuda, British Virgin Islands, Cyprus, etc; Panama, the Russian Federation, Costa Rica, might lack such well estabished regulatory bodies. At this time of writing, some forex brokers setting up offices in Hong Kong and Singapore are on the rise to provide clients with better regulatory reputation and tax advantage.