How to find a broker for forex trading? Check our forex broker ratings list when you choosing the right forex broker.
So, what is a trading broker? By definition, a broker is an individual or firm that acts as an intermediary between an investor and a securities exchange.
Recently I wrote the article How to choose a forex broker step by step, and I got a lot of questions from my friends on Twitter and Google+ about this problem. So I decided to name all the factors that influence the forex broker selection process. I found 20 factors or 20 good questions we should be asking ourselves when we choose a forex broker. So how to be a good forex broker? How to find a broker for forex trading?
How to choose a forex broker checklist:
There are a few critical things to consider when you want to find a good broker.
1. Choose Regulated Forex Brokers
Finding the best Forex broker is very important for ensuring that each deal and trade is as successful as possible. Finding the best broker to work with is of utmost importance. Two main factors are considered the benchmark for a good brokerage. The first is financial transparency. This is a vital aspect of any reputable and successful brokerage. The second is regulation. Regulation plays a large role in the success of a broker. The main reason for this is to ensure proper measures are taken if the deal does not work out. If one side feels they were wronged in the trade, it is important to have a broker that will genuinely look into the matter. These are some of the many reasons why finding the top Forex broker is highly important.
All countries are not regulated similarly; they don’t have a similar regulatory environment and requirements for fiscal registration. So, every trader/investor needs to select the broker of foreign exchange based on where regulatory agencies observe their actions. You can check each forex broker regulation in our regulated forex brokers’ ranking list.
Forex regulation is based on several governmental and independent supervisory bodies such as :
The National Futures Association: NFA is the industry-wide and self-regulatory company for futures business in the US. It develops the rules, programs, and services to defend the integrity of the market, investors, and traders and assist the members in meeting regulatory responsibilities. CFTC (U.S. Commodity Futures Trading Commission) is the independent government agency regulating futures of commodity and options marketplaces in the US. The mission of CFTC is to defend the users of the market from the scam, manipulation, and abusive practices related to commodity sale and financial futures and options and foster open, financially sound, and competitive futures and the options marketplaces.
Cyprus Securities and Exchange Commission CySec is a Cyprus regulation body and very important because low country taxes make many major and strong forex brokers open their offices there.
FSA is the former regulation body for the UK. Today Financial Conduct Authority FCA in the UK forex regulation body. The Australian regulation body is the Australian Securities and Investments Commission ASIC, Markets in Financial Instruments Directive or MiFID is the EU regulation body, CNMV or Comisión Nacional del Mercado de Valores is Spanish, etc.
If you select to do business with an unregulated broker, then you’re creating potential problems. Of course, I know few unregulated brokers who deal with excellent clients.
For example, if you’ve to dispute the trade on an action helped by a broker. There’re few countries where legal protection and law are strict and dependable, like the United States, Australia, and the United Kingdom but most EU countries.
2.Forex broker reputation
Forex broker reputation we can check on several ways, and we can not be 100% sure. First, we need to check the forex community, such as the forex peace army or our website, and read the forex broker review. Then you can check Alexa traffic rank to see how many visitors the forex broker receives. If you see traffic below 100k, it is a good sign. You can see that forex brokers such as FXCM or Instaforex have a high traffic reputation and, at the same time, a high user experience reputation. It would help if you researched, and this is a challenging task.
The second strategy for testing a broker’s regulation is to read high-quality reviews. Reading real reviews from previous partners is a great way to determine each broker’s character and reliability. This method is a practical route for ensuring that each broker is of high quality. It is essential to work with the best broker possible. Therefore employing caution during the initial phases will pay off in the end. The next tip is to read Forex forums. Forex forums are similar to reviews; however, they are specifically curated for the Forex industry and community. The Forex community can speak openly about their likes and dislikes for a certain broker. This is a great method for opening dialogue between different enterprises and finding the best broker for each trader. Each trader is different and has different preferences and goals. However, financial transparency and regulation checking will always be benchmarks for quality and a solid broker.
3. Forex broker Safety, Security and Funds Insurance
This important step we can not check easily. Only we can get information using forex broker chat support. Broker support can provide information about regulation, safety. Information that you can get in that conversation will be regulation, number of clients, funds. You can go to the regulation body website and check the forex broker company.
4. Check the forex broker allowed country list.
Many forex brokers can’t accept traders from some countries because they haven’t sufficient access and authority. Some countries do not allow forex trading as well. You can see this in the Terms section at the forex broker web site. For example, most EU forex brokers do not accept USA traders.
Advice: Always read the Term and condition section.
5. Forex broker capital
If you are a high deposit trader, you need to check this information. Please visit the Foreign exchange companies Wikipedia page and see a list of main forex brokers (you can type others in the search box). Here you can find separate pages about forex brokers. Look at the number of employees and capital.
6. Dealing desk vs. Non-dealing desk
Dealing desk brokers use their capital against you. If you make an order, that order goes against the broker’s capital. So when you lose forex broker is winning.
No dealing desk means that you trade on the interbank forex market. When you make an order, you directly trade on the market. Big forex brokers usually offer non-dealing desk. Non-dealing desk trading has disadvantages like lack of trading bonus, no demo account, a small number of payment options, etc.
7. Support and customer service
This is another crucial criterion when you select a forex broker. The website’s chat option is significant and fast (less than 24/48 hours) broker email response. Of course, traders usually have problems with account verification and payments. In that communication, it is essential to have an excellent relationship with the forex broker-agent or support operator.
Chat, email; Skype is standard tools for communication with a forex broker. You need to find all this information on the website.
8. Which forex trading platforms use a forex broker?
Forex Trading Platform MetaTrader or MT4 is the best forex platform for the majority of traders. Several software companies created excellent trading software, such as FXCM Trading station. A badly designed interface could lead to expensive order access mistakes. The problem can be customization, order entry, options of automated trading, trading alerts, backtesting, and strategy builders. Many brokers provide free demo accounts to test the trading podium or platform before opening an account funding.
Advice: Always test a new forex trading platform using a demo account. Pick forex brokers that offer several trading platforms. Always test platforms and check for crashing or slow execution.
9. Currency pairs
Most traders trade only forex major pairs, some of the forex and major stocks, major indices. But there are many exotic forex pairs, and if you like to trade USDMXN or USDNOK or some other pairs, it is smart to check how many currency pairs the forex broker offers.
10. Demo accounts and testing
The forex broker must offer demo accounts for trading testing, EA testing, platform testing. This is very important if you trade using a new platform or a new beginner trader.
11. Spread or commission
Forex brokers earn money, and they take a commission from the spread. On the whole, there’re three structures of commission used by the Forex brokers:
1. variable spread
2. fixed spread
3. charge of commission based on the percentage of the spread
Just a quick reminder: the spread, normally calculated in the pips, is a variation between buying & selling price.
It would help if you found a website section about the spread. Brokers very often offer tight spread for major forex pairs. Traders can trade with 1 pip spread for EURUSD very often. But if you do not trade only with main forex pairs, you need to look spread for cross pairs such as EURAUD, GBPAUD, GBPNZD, or exotic pairs as USDSEK, USDMXN, etc. For example, I tested several forex brokers, and they offered 1 pip spread for EURUSD but 12 pips for GBPNZD. This is not good.
Advice: Forex broker chat section is significant for all good brokers.
12 Lots and accounts
A micro lot has 1.000 units, a mini lot of 10.000 units, and a standard lot of 100.000 units. If you have less than $1.000, you need to have for sure a micro lot account.
13. Margin and Leverage
“Leverage” means borrowed funds. Traders increase leverage because they can invest in forex trading without increasing their equity. The foreign exchange traders are liable to like the higher leverages and sometimes select the broker based just on such a feature. The levels of leverage are over the concern for aggressive dealers who wish to employ the big possible leverage; nevertheless, a conservative or moderate trader will be a pleasure with average leverage levels. For traders who do not risk money, this is not important information. They, for example, set leverage to be 1:10 or 1:20. For high-risk traders, leverage can be till 1:500. Learn more about Margin and Leverage from Wikipedia.
14. Forex broker deposit and withdrawal methods
As a trader, you need to watch:
1) Deposit amount – The minimum deposit amount is significant. Some brokers do not have the minimum value as Instaforex, for example, and some brokers do not allow trading without a $5000 initial deposit.
2) Deposit methods: Today, online payment service providers as Paypal, Skrill MoneyBookers, Neteller, Ukash, Webmoney, etc., are an excellent choice for internet payment. When you use this service, payment is fast, and withdrawal is fast too. Except that commissions are lower, so payment services are an excellent choice. If you have a favorite payment option, try to find it in the deposit and withdrawal section.
3) Withdrawal methods: Sometimes, withdrawal methods are not the same as deposit options, so you need to check that.
15. Forex broker bonus
Forex broker bonus is an excellent way for every broker to attract new and old traders. This is an essential thing.
16. Value-added services
Special services are actual-time charts, economic data, news, special website tools, broker expert advisors, forex experts on demand, charts pattern analyzer, forex advisor services, etc. This can be a very, very important thing for some traders. A few years ago, I chose FXCM as my broker because they offered Dailyfx on Demand DoD service where forex experts make analyses, chat with traders, and talk about trader’s trading setup.
17. Automated trading option
Many forex brokers offer additional services – automated trading or mirror trading, PAMM accounts, MAMM accounts, or signal to provide services. In a word, some other experts trade for you. In this case, the biggest providing service is Zulutrade than Tradency and others. Here you will receive forex signals, and you will follow. For PAMM and MAMM accounts, the trader will get the fund manager, and how a fund manager’s equity grows, your equity will grow as well.
Understanding the full financial position of a broker will help on many different levels. First and foremost, if the brokerage is stable financially, they will be better equipped to handle issues that arise. For example, lately, many brokers have been closing on the Forex market with little to no warning. The main reason for this is due to financial instability and transparency. Brokers with financial instability and a lack of transparency are likely to close. This is the main driving force behind these two critical aspects. It is also important to note the importance of proper and thorough regulation. Proper and thorough regulation helps to ensure the broker is equipped. The first tip for testing this is to open a demo account. Opening a demo account with a specific broker is a great way to test if they can handle finances and follow the regulations and guidelines.
On end: How to complain and How to claim compensation from the forex broker?
So if you choose a forex broker and have some problems, the best solution is always: Contact the forex broker company directly and Make the complaint yourself.
You can read articles from the FCA consumers section in the above links, but advice from there you can apply for every forex broker.
Is it possible to trade forex without a broker? In theory, yes (if you have a large sum of money). Practically, traders need to have brokers if they want to trade on the market.
The last tip for finding the best broker possible to work with is to take calculated risks. Being too careful or too cautious will not lead anywhere, either. This is why once the research is completed to the best of each trader’s ability, a final decision must be made. Finding the right broker does is not complicated with the right tips and strategies for success.