If you are considering trading or investing, the broker you use will go a long way in defining your experience. This is because you can’t access the markets yourself, you have to go past a broker so you can’t avoid them.

When choosing a broker, don’t just go for the one that offers free stuff and lots of bonuses, you have to look beyond the freebies. Some brokers also promise zero commissions but turn around to charge other types of fees to make up for the commissions.

There are also scam brokers and some are very elaborate. Once you’ve pulled out money, it’s always hard to get the money back, so it’s better to be safe than sorry.

There are other factors that border on technology, regulation, data security and ethics that you should also consider when choosing a broker.

What questions should you ask when selecting a broker?

There are 7 questions to ask to help you conclude that an online broker is safe to do business with. So let’s get right into it.

Q1. Is the ASIC broker regulated?

The Australian Securities and Investments Commission (ASIC) is the financial services and financial markets regulator in Australia. As part of their numerous duties, they also license all brokers operating in Australia.

When you visit their website www.asic.gov.au do the following:

• click on “search in our registers”
• click on “professional registers”
• click on “browse professional registers”
• select “Australian Financial Services Licensee”
• Type in the broker’s license number which you can find on the broker’s website.

For example, eToro brokers have an Australian Financial Services License Number of 491139 as seen on their website. So as soon as you enter this number, all the details about eToro will be available for inspection.

Q2. What is the security and privacy policy of the trading app?

first, App security talks about security features like encryption and two-factor authentication (2FA). Your broker trading app must be equipped with 2FA. When you use 2FA, two layers of security are activated. These layers combine: something you know, like your password, and something you have, like a code sent to your cell phone.

2FA can be activated to login to your account, or for sensitive transactions such as withdrawals from your trading account. The idea is to keep your account safe. In the event that someone has your password, chances are that person does not have your cell phone at the same time.

It’s also a good idea to do some research on the broker’s history, to find out if they’ve had any data breaches in the past and what they’ve done about it.

second, a privacy policy tells you how your information is used, shared, how long the information is kept, and where your information is stored. You may need to know if your data is stored on servers in countries with poor privacy laws.

Q3. How is the execution speed of the trading app?

Your brokers app should have super fast execution speed. You don’t want to see a loading sign or a wait sign when you’re about to buy or sell an asset. By the time it thaws, the asset’s price may have changed and you’ll see a new quote.

However, it is difficult to find out the execution speed if you have not used the app. The solution is that you can download the app and start with a small amount to test the speed. Alternatively, you can also find out about those who are currently using the app.

Q4. What are the account specifications?

First, if you are a forex trader, you may plan to trade certain currency pairs or stocks of certain companies. You need to know if your broker allows access to the currency pairs, stocks, etc. you want to trade in.

From this survey of 30+ best forex brokers in Australia that offer currency trading and CFDs in different markets, all brokers have different account offers. For example, some of these forex brokers offer as many as 110 currency pairs while some offer only 49 currency pairs etc so you need to know which one is right for you.

second you need to know how much leverage the broker offers for each asset class and whether you want it.

Pepperstone markets, for example, offer 10:1 leverage for commodity CFDs. But you should not choose an unregulated broker to use higher leverage.

In Australia, the ASIC limitations on leverage that CFD brokers can provide to protect retail traders from losses, between 2:1 for CFDs on crypto assets and 30:1 for forex for traders, depending on the instrument being traded.

Thirdly you need to know if the broker supports Negative Balance Protection (NBP). This ensures that you don’t lose more than your starting capital and you owe money to your broker.

Likewise, you should check other account features like account types, fees, platforms, charting tools etc.

V5. Is the trading app interface user-friendly?

A user-friendly app must be available. It should also have easy-to-read menus, visible and evenly spaced buttons so that you don’t accidentally click the wrong button.

Charts and indicators should be available and easy to configure in different colors. It should also allow you to copy trades if you like automated trading.

Push notifications should also be flexible and easy to set up for different events. These events include, but are not limited to, when bid/ask prices change, when a news story is released, taking profits, etc. The app should allow you to send the alert to your mobile phone or email address.

Q6. How is the customer service?

There is a fiduciary relationship between a broker and a trader. This means that the broker is expected to put the interest of the trader first. So every time you call on your broker, they have to respond to you.

There will be times when you need urgent help like when you can’t login to your trading app, when you have deposited money but haven’t displayed it, etc. In times like these you need a quick response from your broker.

Your broker should provide you with more than one communication channel. Emails, 24 hour live chat, toll free phone lines etc. should be available. Your broker should also assign you a human relationship manager so that you can contact the person if you have any problems.

Response time to email inquiries should be short, phone calls should be answered on time, and lie chats should be responsive. These are all signs that your broker’s customer service is good.

Q7. How much will I pay?

Brokers have different types of fees. Some are trading costs like commission per turn and some are non-trading costs like inactivity costs, account maintenance costs etc.

The trading fees are the ones that really bite as they increase with the volume of your trade.

For example, round-turn commissions per standard lot for forex trading, IC markets charge $6 with a cTrader account, while Pepperstone charges $7, while eToro charges no commissions.

For AUD/USD spread, XM markets charge 1.8 pips, while eToro offers 1 pip spread on average. So the point is that fees, spread and commissions vary by broker so you should do a check.

These fees may seem negligible, but when they accumulate, they become high. Fees can also affect any profits you make from trading, as we see in the example below:

example 1

Imagine trading with a broker who charges a commission of $7 per round and $1 overnight swap fee.

You buy a standard lot (100,000 units) of AUD/USD to exchange at 0.7215 for $72,150. You hope that the exchange rate will rise and that you will win.

Lucky for you, the exchange rate rises to 0.7217 after three nights, so you sell and make a profit from $20† But don’t forget the cost!

Your broker will deduct $7 commission per round, and $3 overnight fees (since you held the position for 3 nights). So your actual profit will be $10

This is just one example of how fees and commissions affect your earnings. Before settling for a broker, compare fees and commissions.

Choose wisely

Choosing a broker can be overwhelming, I know. You don’t need to be in a rush though, so take your time, grab a pen and paper and do some comparisons.

Regulations are the first thing to look out for as there are so many scammers out there and most of them will reach you through social media.

You can also try out different regulated brokers to see which one is best for you. Remember to practice demo trading and start small lot trading if you are a new broker.