Things to Consider When Choosing a Broker
It’s wrong to assume that every currency broker is a scam. Some brokerages may have scam-free operations but may have specific practices which jeopardise the safety of their clients' funds. That is why merely checking to see if a broker is a scam or not is not the right way of selecting a broker. There are specific metrics you can use for a more objective evaluation.
These metrics for currency broker selection are designed to encapsulate the essential aspects of currency brokerage operations as it affects the trader directly.
Choose a Broker That Ringfences Clients' Funds
Account segregation, or ringfencing, is a mandatory requirement in many jurisdictions. This factor makes the difference between protection of clients' funds in the face of insolvency or total loss of such funds. Ringfencing means that the brokerage firm will keep all funds belonging to clients in a bank account with a designated bank, separate from the bank account(s) which hold the operational funds of the brokerage.
This requirement saved many traders' funds when the Swiss National Bank's January 2015 de-pegging of the Euro from the Swiss Franc led to the insolvency of at least two major brokerages. You should be able to get this information in clear terms from the brokerage you want to use.
Regulation means that the currency broker is registered and licensed by the country's financial market regulators to handle, process, clear and conduct settlement of funds belonging to traders. You don’t have direct access to the market. You have to use a broker to do this. How else can you guarantee that the broker will not disappear with your funds if not through the process of regulation?
Several processes are invloved in regulating brokerages, for instance that the firm has to have registered industry professionals as part of their managerial team. Even staff have to possess some industry-level qualifications, without which they cannot work in those industries. When a professional knows that his livelihood can be challenged if he or she engages in corrupt practices, it makes them extra careful and sensitive when dealing with funds of clients.
Regulation ensures that brokers abide by a code of conduct which leads to transparency and integrity when dealing with clients' funds. There are strict penalties for any infringements. In other words, regulation builds a system of accountability which ensures the integrity of the financial market systems.
In South Africa, the Financial Sector Conduct Authority (FSCA) mandates all currency brokers as well as the top stockbrokers in South Africa to place their regulatory information (license number, etc.) on the home page of their websites. The brokerage operations of ThinkMarkets in South Africa is operated by TF Global Markets (South Africa) Pty Ltd. The regulatory information is displayed at the bottom of the home page, as shown below.
This is in keeping with the requirements of the regulator in South Africa. It immediately tells you at a glance that you are dealing with a licensed operator and not a bucket shop. It also means that all privileges and rights that a trader has by working with a regulated entity in the brokerage business will be fully delivered.
What is the Track Record of the Broker?
Choosing the best currency or stockbroker in South Africa doesn’t end with just regulation. A broker can be well regulated and do everything by the book, but may have some issues that affect the entire experience. Trading is not all about placing orders to buy and sell stocks or currencies. You may have questions that need answers, and a responsive, polite customer service would then be desirable.
You may also want to see features that will enhance your experiences, such as the addition of payment methods that provide quick deposits or withdrawals. Some currency traders may want a cold wallet that will enable them to send profits out of their trading account so they can reserve what they have made and work with the rest. Every currency trader wants certain things out of their work with a currency broker. If this is lacking, then there will be problems.
The only way to know if a broker is suitable for your business is by looking at their track record. Luckily, online forums and blogs abound. On these blogs, you can get first-hand information from other traders about how good or bad a broker from South Africa is. Such independent sources of information can tell you a lot about the track record of the currency broker.
The product offerings of a currency broker should be a factor to be considered in choosing brokers. Currency traders who are leaving EU and UK brokerages are doing so for a reason. They want a better deal than they are being offered in terms of margin requirements.
How well do currency brokers in South Africa meet this need?
This is where a look at the product offerings comes in handy. For instance, ThinkMarkets offers leverage of between 1:100 and 1:500. These leverage levels cut the margin requirements for operating a stock trading account. Not all currency brokers in South Africa meet this requirement.
It doesn’t end there. There are some aspects of the contract specifications that may appeal to some traders without appealing to others. This is where individuality comes in. Make sure you choose a broker that has contract specifications that suit you.
Customer support is at the heart of the trading experience. We have all been in situations where we had more questions and answers, and this is where a responsive customer support team comes in.
Many brokers are now fine-tuning their customer support department to make them more suited to local requirements. What works for traders in one region may not work for traders in another region. Accessing a customer support officer who understands the needs of the traders in an area and can adapt to responding appropriately allows the trader to have a well-rounded experience.
Trader insurance is gradually becoming a very integral part of the trader's experience. ThinkMarkets has an insurance policy that protects traders for up to $1m in case of the unlikely event of bankruptcy. This package is far above what is provided by similar investor protection funds in Cyprus and the UK. Trader insurance serves to boost investor confidence, knowing that funds are kept safe from any untoward events that happen from the broker's side of the equation.