By Adinah Brown

1. Who are you regulated by in my jurisdiction and what are their contact details?

You may read on your broker’s website about impressive regulations that appear to provide bullet-proof security. The only thing is, they may not be applicable to your jurisdiction. This means your broker will not have to uphold these regulatory standards for you because of the location in which you are trading. Another factor which can impact this is that in some jurisdictions it is actually illegal to offer brokerage services without local regulations. To confuse matters further, in those situations, that may only apply to brokers with a physical office in the jurisdiction, so some get around it by not setting up an office in your country. Not having a local office is not necessarily a sign of a shady company, most brokers work from a centralized point, because most of their services are online. In any case, find out who they are regulated by, and how their regulations protect your interests. Contact the local regulators and do your homework to make sure you know how you are covered.

2. What are the charges?

A brokerage will often say that the only fee is the spread, and then still charge overnight fees or commissions. The problem is they do not consider this a “charge” so they will not mention it. It is always best to follow up with questions on overnight fees or commissions to get a sense of the true cost of trading. Armed with this knowledge, you will have proper insight into whether a seemingly great spread (or a zero spread) is as good as it seems.

3. How can I get improved conditions?

Prior to signing up, feel free to go fishing. Compare brokerages to see if they will be willing to negotiate on costs and conditions. Often they will try to link benefits to a level of trading volume or deposit amount. Get the specifics on their offer and use it as leverage with other companies to see if they will match it.

4. Are the positions marked to market?

Meaning, are the positions that you open actually opened in the real market? Opening actual positions is not a requirement for some regulators. Traders prefer to have their positions passed to market as they feel that this ensures no market manipulation on the part of the brokers or dealing desk. Realistically, manipulation should not be an issue, as regulators keep a strict watch on these activities to ensure that the trader is not cheated.

5. Do you have a dealing desk or non-dealing desk setup?

A dealing desk setup is often seen as a way of manipulating the market. A non-dealing desk means that all positions are marked to market and the broker does not have an interest in your failure, due to the belief that as a counterparty they profit from your loss. Again, good regulations will prevent this but if you firmly believe in the need to have trades marked to market then a dealing desk is likely to be an issue for you.

6. Can I visit your office?

This is basically asking, do you have an office or are you working out of your garage? This simple question can be a good way of determining how professional the company is. If the broker has a dealing desk model / trading floor, ask to see it. There is no reason that they would not let you come visit if they are legitimate. And it will be quickly apparent if the location is someone’s garage or basement.

7. What protections are in place in my personal account if the broker goes under?

There are certain regulators that have custodial accounts and specific separations between the business’ funds and trader’s funds and you need to make sure that this segregation is in place. Ask for proof if they say that they do, they should be able to produce a document from their bank indicating that this setup exists.

8. Does any of the software not have logs in case of a technical error?

Sometimes phone trading apps will have no capacity to retrieve logs. This can be an issue when you need to prove that the technical error did not come from your side. Without logs there is no way to prove that the error was due to the broker. Remember, that with mobile trading there is always the possibility of poor data connection to your phone, with the potential to impact your trading.

9. Bonus question: Are there any types of trading that I am not allowed to do?

Sometimes you are not allowed to hedge or scalp. This is important as you want to know before you start trading that you are able to trade the way you want.

About the Author:

Adinah Brown is a professional writer who has worked in a wide range of industry settings, including corporate industry, government and non-government organizations. Within many of these positions, Adinah has provided skilled marketing and advertising services and is currently the Content Manager at Leverate.