What is a financial broker?
There is a very wide choice of financial brokers worldwide, varying in type, quality and regulatory design. Why do traders need to exercise care when choosing a broker?
A broker trades financial instruments for stocks, cryptocurrencies, ETFs, indices, commodities and foreign exchange. The difference to traders is that the broker always trades for the account of a third party. There is a very wide choice of brokers worldwide, differing in type, quality and regulatory design. Some differences are already found within one jurisdiction, some differences are only found when you choose a broker from another country.
Why do I need online brokers?
In order to be able to buy and sell financial products, you need an online broker with the appropriate authorisation from the financial supervisory authority. This is because, as a private individual, you cannot place your buy and sell orders directly on the stock exchange. For reasons of effectiveness and the maintenance of quality standards, it has been decided not to grant every private individual direct access to stock exchange trading. Even as a company, you cannot get access to exchange trading just like that. This is linked to certain requirements and conditions. So a broker gives you access to the markets, whether they are on one exchange, multiple exchanges or off-exchange. Online brokers are, so to speak, your interface to the big world of the financial markets.
Which online broker is the best in UAE?
200 AED Only
And access:
• Social Trading
• Copy Portfolios
• Over 2000 Markets
400 AED Only
And benefit from:
• Social Trading
• Automated Trading
• Bonds CFDs
1 AED Only
And access:
• Demo Account
• xStation 5 Platform
• Over 2100 Markets
Before deciding on an online broker, the question arises “Which online broker is the best? As a guideline, there is no perfect broker for every investor. The range of products on the market is extremely extensive, so that beginners in particular can easily lose track. In order to find the best broker as an investor, you have to think about your personal needs. As soon as you have decided which product range the broker should offer, it is much easier to find the right provider. Ultimately, therefore, the choice of the perfect broker for each investor is very individual, because it depends very much on his or her preferred criteria. But how do you know which online broker is recommendable?
The most important information at a glance
- First, determine your individual criteria for selection
- Then check the offers of the brokers in detail.
- You should also pay attention to the product range, the location and the regulation.
- Other conditions such as costs and minimum deposits should be checked.
- The information on opening an account is decisive
- The trading platform should be user-friendly
- In online forums you can find information on customer experiences
- The trading platform should have an investor protection program
- The broker with the most suitable offer and the best rating is optimal
Which online broker is the right one? The characteristics of reputable brokers
Even before you think about what requirements you yourself have for the perfect broker, you should be able to answer the question “What is a broker?”. Then it is worth taking a look at the characteristics of the common providers on the market. The top candidates do not differ significantly with regard to the most important criteria. However, it is important to know that not every broker fulfils these decisive factors to full satisfaction. But what are the criteria you should definitely look out for? What features make a reputable broker where even a beginner can start trading?
UAE Regulation
A top broker, such as eToro, should always be subject to regulation by its national banking supervisory authority. In UAE, this is the UAE Securities and Commodities Authority (SCA). When a broker submits to SCA’s scrutiny, it means that its business, its transactions and also its offerings are controlled by the consumer protection institution. This makes it almost impossible to do unfair business with customer funds or to engage in any form of improper business conduct. Although having an SCA approval certificate is ideal, an online broker doesn’t necessarily require it to operate its platform in the UAE unless the broker has an office in the UAE. Internationally renowned licenses such as CySEC and FCA suffice to prove the entity is legit.
With a controlled broker, the investor is much more certain that all transactions are handled seriously, transparently and comprehensibly. It is important to know that the regulatory authority is always the one at the broker’s location. This means that a broker from Cyprus is supervised in Cyprus by the local regulatory authority CySEC and thus fulfils an important quality feature. However, if this broker has a local branch in the UAE, it should also be subject to the UAE supervisory authority SCA. For the investor, this is the sign of maximum security in all trading transactions.
Deposit protection
Deposits are not ensured in the UAE. As an investor, you should know what the broker’s deposit insurance is all about. This means that invested customer funds might protected to a certain amount, even if the platform gets into economic difficulties. UAE banks do not typically offer coverage but a platform that might offers it makes it that much better. They cover losses that could arise in the event of insolvency with part of their own capital. However, it is important to know that the deposit protection mainly applies to so-called sight deposits such as overnight and time deposits or savings accounts. Those who trade in shares, commodities, foreign exchange or other speculative assets are not affected by the deposit protection. It does not apply to them, so that losses from fluctuations in value can occur in these trading transactions.
Customer service
A good broker can be recognised by the fact that he has a second to none customer support. The platform should be available online in your preferred language, by e-mail and by telephone during normal business hours and off-peak hours. A look at their FAQ is also important; these should always be provided by a good broker. With any form of customer support, the aim is to offer investors maximum transparency so that they know what is happening with their transactions, where their money is going and where they can get help. It speaks for a good broker if he convinces through good accessibility and through maximum comprehensibility and transparency and has no secrets from his customer.
Customer reviews
An important feature of outstanding brokers are the opinions of their clients. In the common online forums, one often finds a lively exchange about the best candidates. It is worth taking a look at the opinions of experienced traders. If it becomes apparent here that individual providers repeatedly stand out due to certain negative criteria, this can be a reason to refrain from a trading relationship. Conversely, it can also speak in favour of an online broker if other investors have already had very good experiences with it. Often you can find out a lot of useful background information in online forums which is not immediately apparent in advertising commercials.
The platform
Ask yourself what you expect from a charting and trading platform. Are you satisfied with the look and feel of your online broker? Would you like to use a special charting software or trade directly on the broker’s site? Or do you want to use a charting software and then enter the orders on your broker’s platform? Do they cover a wide range of markets? Does it offer enough liquidity to execute on your trades? Whatever you decide, make sure you are provided with enough data for analysis.
Fee structures
The fees can differ from broker to broker, as well as from product to product. This means that you may have a different pricing structure for an asset than for the same underlying instrument traded as a CFD. Or if you trade the dollar in the currency future, its price structure may differ from the price structure of the dollar you trade as a currency pair in the rolling spot or CFD.
In stock trading, it is common for the broker to quote prices with a so-called spread. The spread is the difference between your buy price and your sell price which is typically a small percentage of the unit price. On the other hand, in Forex trading, the spread is calculated in Pips. This is why currency pairs are also divided into majors (major pairs), minors (minor pairs) and exotics. For the majors, the spreads are usually small. Common for the euro against the US dollar are usually 1 to 3 pip depending on the provider and time of day. Yes, you have read correctly: Spreads can vary either by time of day (during peak trading hours and off-peak hours) or by market conditions. For example, an important press conference or the release of economic figures can widen the spreads.
In addition to these so-called spreads, there may also be other fees such as ‘Withdrawal fees‘, ‘Deposit Fees‘, ‘Inactivity Fees‘, and commissions. Inform yourself. Do the math and check the fee structure of your favorite online broker before you sign up.
Now, don’t necessarily pick a broker based on how favourable their pricing structure is. Even if it sounds hard, a broker also has to earn money to pay for the infrastructure and staff. The old adage is also true here: “You get what you pay for”.
Awards
If you are wondering which online broker we recommend, it is worth taking a look at our broker reviews. A provider who has already been able to convince multiple times in assessments is definitely a good choice, as long as the product range corresponds to personal preferences. It is also important that the assessment results are consistent over several years. A broker that has outperformed and improved several times in the test is of course also to be recommended. On the other hand, one should stay away from a provider who has repeatedly attracted attention in the analysis due to an increasing deterioration.
Before asking the question “Which online broker is the best?”, a look at the most important criteria is relevant. A reputable provider can be recognised by the fact that it is subject to regulation by the local financial supervisory authority. It should offer comprehensive deposit insurance and have a customer service that can be reached on several channels at least during normal business hours. Rating results are also a reliable sign of quality.
What types of brokers are there?
Roughly speaking, five types of brokers can be distinguished: Dealing Desk; Market Maker; ECN; STP; IB. The differences usually lie in the type of order execution and the spreads. Dealing Desk: Every order you place with this broker passes through a trading desk in the trading department. The order is then routed from there to the exchange or executed in OTC (over-the-counter) trading (e.g. interbank trading). In the latter case, the broker is usually a market maker, e.g. in CFD trading. Market maker: He does not forward the order directly to the financial market, but quotes his own prices. A market maker often tries to execute the orders within its own system. That is, he sets one of his own clients against another. So the order often does not leave the market maker’s system. It can happen that the market maker “hedges” the client’s order, i.e. enters into a countertrade. In plain language: the broker wins if the client loses and vice versa. The price structure is often characterised by fixed spreads.
- ECN (Electronic Communication Network): Orders are forwarded directly to the interbank market; the price structure is based on flexible spreads of the interbank market or an additional commission. The spread results from the respective fluctuation range of the market. There is no intermediary dealing desk that would have to execute the order first. The order book and thus the market spread can be viewed.
- STP (Straight Through Processing): This broker forwards the order to a so-called liquidity provider (nothing other than an exchange trader) for execution. This is usually a bank that has direct access to the interbank market. The order is then executed on the interbank market.
- NDD (No Dealing Desk): These are all the brokers who forward the client orders directly to the interbank market. These are therefore ECN and STP brokers. The advantage or disadvantage for the customer is that he directly receives the spreads of the interbank market.
- IB (Introducing Broker): This type of broker is a kind of STP broker with the restriction that it only has one liquidity provider or, in German, only one exchange trader. The broker receives a commission from the trader for the trades or clients it brokers. This type of broker is mainly used in the forex sector. Now it is not the case that every provider on the market can be pressed into a fixed pattern. There are certainly mixed forms. For example, a broker can be an ECN broker in one area, for example in forex trading, and act as a market marker in another area, for example in CFDs.
