How To Choose A Forex Broker in Malaysia : A Complete Guide
In a previous article, we’ve discussed about Forex brokers and what do they do. That’s also where we discussed that for most of the scams that are going around in Forex trading, the perpetrators are usually posing as a Forex broker. So in order to help you from falling into these scams, in this article we’re going to discuss at length about how to choose the right Forex brokers for yourself. So if you’re looking for the best Forex brokers in Malaysia, don’t worry because we’re going to help.
Factors You Need To Consider
When choosing a Forex broker for yourself, there are a few factors that you have to consider. Here, we’re going to list down these factors and why they matter.
#1 – Safety And Security
The first and foremost factor that you should be considering when choosing a Forex broker is how safe, and how secure is their platform. After all, you’re going to be entrusting them with your money. So it’s just common sense that you want a Forex broker that can be trusted.
So how do you find a trusted, safe, and secure Forex broker? Simple, check your respective regulatory bodies. Before you decide to use any Forex broker, make sure that your Forex brokers are licensed by your regulatory body. Regulated Forex brokers are overseen frequently, which means that you don’t have to worry about any malpractice or appropriation of funds.
For example, if you want to find a Forex broker in Malaysia, then you want your Forex broker to be licensed by the Securities commission of Malaysia. If you’re trading out of the US, then you want your Forex broker to be a member of the NFA, and registered with the CFTC.
Almost all countries have their own regulatory body, so you can check which Forex brokers are registered/licensed by the country that you are operating from.
#2 – Safeguarding Of Funds
Another main thing you want to make sure of before you start to trade using any Forex broker is your fund’s safety. This is another reason why you should only use Forex brokers that are regulated by the country’s regulating institution.
Every regulated Forex brokers is required by law to comply with a set of rules that are put in place to safeguard investor’s assets. This rule is called the ‘Net Capital Rule’ and this rule requires a minimum amount of capital to be kept in liquid form.
What this means that even in the unfortunate circumstance where your Forex broker is forced to close down, your money won’t be lost.
#3 – Additional Costs
Moving on, another main factor that you should consider before choosing a Forex broker is their transaction costs and details. As we’ve mentioned in our article about Forex brokers, one way Forex brokers are compensated are by charging fees for their traders/users.
This can come in many forms, such as a transaction fee, commissions, and many more. So before you decide on a Forex broker, you have to properly check out their additional fees, and if you can afford it.
However, usually the case is if you want a reliable and trusted Forex broker, the additional fee is going to be higher. Which makes sense, the higher the quality, the higher the cost. But this also means that in most cases, you have to find a Forex broker with the right balance for you.
#4 – Details Of Accounts
Before you can decide on a Forex broker, another factor that you should consider is their account details. Every Forex broker offers different rates on their accounts, so you should be wary about that. Let’s go over the account details that you should know;
Leverage and margin is something that varies from each Forex broker. For the uninitiated, let me explain how leverage works. Simply put, a leverage allows you to bid on a position that is valued higher than your current deposit. Here’s an example; if you have an account size of $1000 at a Forex broker, and said Forex broker offers a leverage of 50:1, that means that you can hold a position that is worth 50,000$. Depending on your trading strategy you might want a bigger or a smaller leverage from your Forex broker.
As mentioned in our previous article about Forex brokers, Forex brokers are typically compensated through their commissions/spreads on trades. The commission part is simple. It means that your Forex broker will take a percentage of the spread. In case you don’t know what spreads are, spreads are the difference between the bid and the ask price of a currency pair. But how about Forex brokers who claim that they do not take any commissions?
How do these Forex brokers make their own money? Simple, by utilizing wider spreads. Here’s an example. Let’s say the EUR/USD pair closes at 1.1051 bid price, and 1.1053 ask price. This means that the spread for this currency pair is two pips. But instead of selling you the currency pair with a spread of two pips, the Forex broker will sell you the currency pair with a spread of 3 or more pips. This is where the Forex broker is getting his compensation. So before you choose a Forex broker, make sure you understand how exactly are they compensated.
Now here’s something that’s simpler than the two things we’ve just discussed. The initial deposit simply means just how much are you allowed to deposit as your initial deposit into an account. Some Forex brokers might offer an amount as low as 50$, but some might set it way higher than that. Depending on the scale of your investment, you might want to find a Forex broker that offers a low initial deposit amount.
Ease Of Withdrawal
Here’s another really simple factor, but important nonetheless. Just how easy it is for you to withdraw your money. Some Forex brokers allows you to withdraw into multiple platforms such as your bank account, your Paypal, wire transfer, bank cheque, and many more. Ideally, you want your Forex brokers to allow you complete freedom in this section.
#5 Types Of Brokers
Strictly speaking, there are two major types of Forex brokers. The first are the Dealing desk brokers. These is the type of brokers you most typically find offered to you by banks and financial institutions. The other type is the Electronic Communications Network (ECN) brokers. So which one is better? Let’s have a look;
ECN Brokers VS Dealing Desk Brokers
Before we can decide which of the types are better, first we have to discuss the differences of these two types of brokers. The differences between these two types are plentiful, but here’s the most important difference between the two of them. The Dealing Desk brokers do not work directly with market liquidity providers, which means that they are only dealing with one liquidity provider. This creates a fundamental conflict of interest for the Forex brokers if they are doing their own trading, as it means that they can trade against their own traders.
On the other hand, ECN brokers offer their traders direct access to other market participants through an Electronic Communications Network, hence the name. So which one is better? For a lot of cases, the ECN brokers are better. Why? For one simple reason. Because the ECN brokers deals with trading quotations from several trading entities, they can offer better spreads.
Another reason is because due to the nature of ECN brokers, they match the trades of various traders, which means that they cannot be the single market maker, which in turn means that they cannot trade against their own traders. Which of course, removes the worry of a conflict of interest.
However, this does not mean that the ECN brokers are a one-size-fits all solution. Under certain conditions for ECN brokers, the liquidity can dry up completely, which creates greater slippages compared to the Dealing Desk brokers.
But for most instances, an ECN broker will be better for an average trader. Just be careful, there are certain brokers who might label themselves as ECN brokers even though they practice Dealing Desk practices.
#6 Currency Pairs Offered
This might come as a surprise for new traders, but not every Forex brokers offers trading options for all currency pairs. Almost of them offers the majors, which are U.S. dollar/Japanese yen (USD/JPY), the Euro/U.S. dollar (EUR/USD), the U.S. dollar/Swiss franc (USD/CHF) and the British pound/U.S. dollar (GBP/USD), but for other currency pairs, then you might have to look a little bit harder.
And this might vary as well according to the country you’ve chosen as your base of operations. If you’re looking for a Forex broker in Malaysia, chances are they will be offering Ringgit Malaysia/U.S. dollar (MYR/USD) pair.
#7 Trading Platform
Another important factor for you to consider before choosing a Forex broker is their trading platform. Although it might sound trivial to new traders, experienced traders understand the fact that the trading platform is a really important factor in choosing a Forex broker.
Why? Because Forex trading is very time sensitive. And there’s nothing worse than trying to chase a deadline through an unresponsive platform. Which is why it’s very recommended for you to try out Forex brokers that offers a free trial option, so you can get used with their platform, and see if it’s to your liking.
#8 Customer Service
And last but not least, the customer service. Forex trading is a 24-hours business, so you want a Forex broker that has 24-hours customer support. This will make your life so much easier if you have any question or are facing any problems in the wee hours of the morning.
So now you know what are the factors you have to consider before choosing a Forex broker. If you want to find the best Forex broker in Malaysia, then follow this guide and you can’t go wrong. Remember that the most important thing when choosing a Forex broker is that you should be able to trust them completely.
If you’re looking for a guide to avoid scams in Forex trading, head here.