How to Choose a Forex Broker

With hundreds of Forex brokers to choose from, selecting the right one can be both challenging and time consuming. To ease the process, we’ve tested and reviewed dozens of the top Forex brokers and compiled our findings into thorough Forex brokers reviews. But don’t just take our word for it – each Forex broker review also includes feedback from real traders, so that you can make a comfortable, informed decision.The basic criteria to use in choosing a broker are few and simple. Without doubt, your number one priority should be ensuring the safety of your funds. Firstly, this means making sure that the broker you choose will not steal your deposit.

You can best take care of this by making sure that you only use a broker based in and regulated by a financial authority in a respected financial center. Secondly, you need to make sure that even if the broker operates honestly, but goes bankrupt for any reason, that you will be able to recover your deposit. One measure that can be taken here is to only deposit with brokers whose regulators offer deposit protection for clients (such as regulated brokers in the U.K. or Australia, for example). This means that even if your broker goes broke, the government will bail you out by paying back your funds up to a certain amount, although it might take some time.

Beyond that, try to choose a broker with a healthy financial situation and a good reputation. Once you have taken these precautions, you can look at what your potential brokers offer in terms of range of available assets to trade, spreads and commissions, overnight financing charges, and speed and reliability of trade execution – and make your choice accordingly.

Things to Consider When Choosing a Broker

Regulation, Safety of Funds & Legal Issues

Regulation and compliance are – beyond the shadow of a doubt – the most important things to consider when choosing a broker. An unregulated broker can essentially do as it pleases with its traders’ funds. Such a broker might be nothing more than an online scam, so it worth being extremely wary of any unregulated brokers.

Regulatory Compliance

The activity of a trustworthy broker should always be governed by an official regulator designed to protect and promote the integrity of brokerage operations. All types of abusive practices linked to the sale of futures and options should be out of the question, as traders should be protected against fraud as well as manipulation. A US broker must be registered with the US Commodity Futures Trading Commission (CFTC) as a merchant and retail Forex dealer. It also must be a member of the NFA (National Futures Association). These credentials are usually listed in the About Us section of the broker’s website. Equivalents of these trade associations and regulatory bodies are present in nearly every country in the world. Depending on where their broker is based, traders should always research and look for these credentials.

Some nations, such as the United Kingdom, even offer government-backed deposit insurance for its regulated brokers so that clients can recover part or all of their funds even if the broker manages to misappropriate them.

Broker Types

Dealing Desk vs. ECN Brokers

Dealing Desk brokers work similarly to the dealing desks provided by various financial institutions and banks. A Forex broker who uses a dealing desk and is registered as a Retail Foreign Exchange Dealer and Futures Commission Merchant (or equivalent in another country) can offset trades. The No Dealing Desk system on the other hand offsets positions automatically and then transmits them to the interbank market. Brokers working through a Dealing Desk system do not work directly with market liquidity providers, therefore only one liquidity provider remains in the equation, and that gives birth to a fundamental conflict of interest.An ECN broker on the other hand, offers its traders direct access to the other market participants through an Electronic Communications Network.

Why is an ECN broker the superior of a Dealing Desk one spreads-wise? Simple: because it deals with price quotations from several trading entities, it can offer much better bid/ask spreads.The business model of an ECN broker is an entirely fair one, as it eliminates a major conflict of interest: because it matches trades between various traders, it cannot become the sole market-maker, thus it cannot trade against its own clients. Another advantage of the ECN is that because of the lower spreads it offers, such brokers can charge a fixed commission on every transaction.However, you should not see ECN brokers as a panacea. Under certain conditions, their liquidity can dry up completely, creating much greater slippages than Dealing Desk brokers’ client might be suffering. Another sad reality is that many brokers describe themselves as of the ECN type, but have an element of dealing desk within their operation, so are not “true” ECNs.

Fees & Commissions

This brings us to the third most important brokerage selection factor: costs

Brokerage fees – Price isn’t everything

Learn Forex Trading – The Basic

Commissions & Spreads (Fixed or Non-Fixed)

The key difference between fees and commissions that all traders need to understand, is that fees represent a flat charge, while commissions vary depending on the delivered financial product and the size of the transaction.

Premium services offered by the broker?

Full service brokers offer all sorts of additional perks and premium features, some of which are indeed extremely useful. Such services do cost extra though. In this respect, what you should be looking for is a broker who includes as many premium services as possible, as cheaply as possible.

How to learn Forex trading

In the premium service category, we have features like advice and research covering a wide range of traded assets, retirement advice, tax planning etc. You need to carefully weigh whether you need such services or not. Discount is probably the way to go then and read FX News

Does the broker credit or debit daily rollover?

Trading Signals | Most brokers roll over open positions automatically.

Margin

Through a margin account, the investor essentially borrows from the broker, with the intention of controlling larger positions than he’d be able to control based solely on his own invested capital. There are special margin accounts that traders can use for this purpose. The margin percentage is set to 1-2% in the case of accounts which trade in 100,000 currency units. What this means is that in order to control a $100,000 position, a trader needs to deposit $1,000. Margin accounts come with their own risks, and special operating procedures meant to reduce risk for the trader as well as for the broker.

Forex Strategies

The difference between margin and leverage is simple. Let’s say a broker requires a deposit of $1,000 to make trades worth up to $100,000. The leverage is the factor by which the deposit is multiplied to reach the maximum trade value: in this case, 100, so the leverage is 100 to 1.

Leverage = Maximum Trade Value / Deposit

Initial Deposit

The initial deposit is the first deposit a trader makes with a broker. This deposit may be subject to special rewards, such as bonuses.

Bonuses & Promotions

You might want to consider whether a really top-quality broker would feel the need to offer such incentives.

Customer Service

Customer service is very important for new traders and experienced investors alike.

Availability

Funds deposited into trader accounts through third party checks typically take some time to clear. Once they do, they become “available”.

Trading Platforms

The trading platform is the gate between the retail trader and the markets. It is also the tool through which the trader performs his trading. A proper, simple, fast and user-friendly trading platform is critical in trading successfully.

Ease of Deposit & Withdrawal

Being able to make deposits and to withdraw money from your broker quickly and easily is highly important. This all depends on the type of withdrawal and deposit options your broker supports. The selection of these payment solutions needs to be as large and as diverse as possible.

Minimum Balances

The term “minimum balance” refers to the amount of money the trader needs to keep in his/her account to keep the account open and to receive the services he/she has signed up for. Obviously, the smaller this amount is, the better it is for the trader.

Broker Comparison

To make 100% certain you’re picking the right broker, you should compare several of them, while keeping your own personal trading style and needs in mind.