How to Choose a Forex Broker

by Nicholas Pangiet     sty 26, 2021

7 mins read

Are you interested in forex trading? Are you considering sign-up with a forex broker? If your response is "yes" to either question, you're in the right place.

In essence, the most important thing to consider when choosing a forex broker is whether or not they are regulated. Other things are essential, such as training opportunities, platform usability, and service offerings.

This article will cover everything you need to know about making the right choice when looking for a forex broker.

Whenever you're ready to get your head out of the clouds and delve deep into research, keep reading, and you will find the right broker in no time!

On Choosing A Forex Broker

Selecting a forex broker requires you to first understand what kind of investor you want to be and your goals in currency investments. Each broker that manages forex investments comes with its own pros and cons. Some of the most valuable things to consider are the level of security, regulations, and transaction fees.

Security features are variable for each broker. Some brokers make use of integrated security, such as 2-factor authentication. Many brokers have to be regulated.

In the U.S., brokers are regulated by the National Futures Association and the Commodity Futures Trading Commission. Countries like Germany, France, Canada, Austria, and the U.K. also regulate their brokers. However, not all brokers are regulated; traders must be aware of this.

Brokers also use different platforms, which come with the town's required transaction fees and account minimums. Before joining a platform, you might want to think about a budget. Figure out how much to invest, what your goals are, and how much you are willing to pay in fees.

There are many factors to consider when choosing the right platform. Ensure that you consider as much as possible before involving yourself with a broker or platform. For a variety of educational resources, check out our learning centre.

Education And Training

The greatest brokers provide many resources to their clients, improving their skills and making better decisions. Visit their website and look for educational sections with tutorials, webinars, and whatnot.

These materials should detail how central banks affect markets when they play the interest rates and how traders can prepare for these changes. The education sections should instruct on trading platforms, market order types, and currency pairs. Look for manuals, videos, and tutorials that show you how to build technical charts, watchlists, and easy-to-read quote screens.

These materials should explain how to gather news and do platform research, so you don't have to look for biased information. Economic analysis and expanded research should cove currency pairs that provide the best short-term profits. This should come with 3rd party insight and commentary from industry specialists as well as live webinars and real-time news.

Look for research that covers the entire world, and not just the local markets. Look for daily economic calendars that list economic market-moving releases. Also, social trading is becoming quite popular; it's available with most brokers. This allows you to interact with other account holders on a social hub to share strategies, ideas, and insights.

Some hubs take the concept even further, and they offer copy trading interfaces that allow you to copy sell and buy decisions of other customers. The best hubs have a rating system that allows you to recognize the most reputable members.

In any case, these are only bonuses that will make your forex broker that much better. However, there are some things to look for that will ensure your forex broker is right for you.

Regulatory Compliance

In the U.S., a trusted forex broker will be a member of the previously mentioned association and commission. They will be identified as a Retail Foreign Exchange Dealer and Futures Commission Merchant.

The NFA is a self-regulatory and industry-wide organization for the U.S. futures. It develops services, rules, and programs to protect the traders, marker, and investors and help them meet their regulations.

The CFTC is an independent government agency that regulates options markets and commodity futures in the U.S. Their mission is to protect the public from fraud and market users from abusive and manipulation practices of financial futures, commodity, and options sales.

A professional and well-designed website does not ensure that the broker is regulated. A broker that is a member of either organization will state this on their website with identifiable numbers that can be checked.

Each country outside of the U.S. has its own regulatory body. Due to the concerns related to broker integrity and deposits' safety, accounts should only be open with firms that are regulated duly.

Account Offerings

Every forex broker has its own account offerings. For instance, forex participants will have access to different leverage amounts based on their broker, such as 200:1 or 50:1. Leverage is a loan developed for margin account holders. For instance, with a 50:1 leverage, a trader with $1000 can hold a position for $50000.

Leverage works in favour of the trader with winning positions because the profit potential is expansive. Leverage can also destroy the account of a trade because the loss potential is also magnified. Leverage must be used with pure awareness and caution.

Next, brokers make their money with spreads and commissions. A broker with commissions will charge a percentage of the spread, which is the difference between the asking price for the forex pair and the bid.

But, many brokers say they don't take. Commissions, and instead make money with spreads. For instance, a spread can be fixed to four pips (a pip is the minimum unit of forex price change), or the spread can be variable due to market volatility.

A USD/EUR quote of 1.3943 - 1.3497 will have a four-pip spread. This means that when the market trader buys at 1.3497, the position already lost four pips because it can only be sold at 1.3943 immediately. The wider the spread, the harder it is to make a profit. Some trading pairs, such as GBP/USD or EUR/USD, will have slimmer spreads than the thin-tradable pairs.

Also, most forex accounts can be deposited with a small amount, sometimes as low as $50. With leverage, the buying power will be greater than the deposit, which is why forex trading is attracting new investors and traders. Many brokers will offer mini, standard, and micro-accounts with variable deposit minimums.

Each broker has its own funding and withdrawal policies. Brokers can allow account holders to deposit funds with ACH payments, credit cards, PayPal, bank checks, personal checks, business checks, wire transfers. Withdrawals can be made in a variety of ways as well.

The broker might charge a fee for these services. Look for forex brokers with the most advantageous service offerings.

Currency Pairs

A currency pair is the quotation of 2 currencies, with the value of one quoted over the other. The first currency listed is the base currency, and the second is the quote currency.

Currency pairs are basically a comparison of one currency to the other, the first against the second. It refers to how much of the quote currency is needed to buy a single base currency unit.

Currencies can be identified with an ISO code, i.e. the three letters alphabetic code that is associated with the market internationally. So the U.S. Dollar has the ISO code of USD. However, the ISO code does not have to be similar to the term name of the currency, such as CHF for Swiss Franks.

While there are way too many currencies available for trade, only some of them get attention. Thus, they have the best liquidity. The major players are the EUR/USD, the USD/JPY, the USD/CHF, and the GBP/USD.

A broker might offer a great selection of forex pairs, but what you should be looking for is offering the pairs you are interested in. Because if they only tailor to the major players, you're missing out on the many possibilities of less-common currency pairs to play with.

Currency is the backbone of forex trading, so it's best that you understand the history of currency, the present time, and the future of currency.

Customer Satisfaction

Forex trading is a 24/7 kind of ordeal. This means that your broker should have impeccable customer service, which is available at any time. It's also essential to assess how easy it is to speak with a live person, rather than a frustrating and time-consuming bot.

When choosing a broker, a simple call can let you understand how their customer service operates and their ability to answer questions regarding leverage, spreads, company details, and regulations. Take note of their wait times.

Learn about the details such as how long they have been a broker and the size of their trade volume. The latter is essential because large brokers have access to better execution and prices.

As you already know, the trading platform is the portal to the market for all investors. As such, investors and readers should only use simple to use the software, aesthetically pleasing, has lots of fundamental and technical analysis tools, and allows you to exit and enter trades easily.

This is very important. A well-designed platform with effective buy and sell buttons, as well as a panic button to close positions, is crucial. A terribly designed interface can lead to costly entry order problems, such as accidentally adding position instead of closing them, or going long when you meant to short.

Other things to consider are order entry types, customization, strategy builders, automated trading options, trading alerts, backtesting, and much more. Most brokers have demo accounts, allowing you to test the platform before you open and fund an account.

Smart Budgeting

Once again, it's worth mentioning the value of budgeting when getting into forex trading. For instance, you should check to see if the dealing fees, spreads, and commissions charged by the broker are appropriate for your preferred style of trading.

Most active traders will want to select brokers who have lower costs of the transaction, which can add up and seriously affect your bottom line. Not to mention, you have to ensure that you have sufficient funds to meet the minimum deposit margin requirements of the broker you will deal with.

If your budget is not in the bracket, look for another broker. Ask each broker about their minimums, so that you can choose another broker or budget for the amount specified.

Some brokers will have specified accounts that are restricted to deposited money upfront, sometimes allowing you to start with as little as $50. However, some brokers will need at least $10000 deposited so that you can use all of it as margin for trade securing.

Learn How to Trade for Free

Now that you know how to choose a forex broker, you are well on your way to find the right one for your own financial investments. As long as you consider everything that is provided in this article, it's very unlikely that you will come across a scammy or poor forex broker.

Forex is also about market research, industry knowledge, and personal ability; without these three, you miss out on pretty much the true essence of forex trading. Knowledge is key, and without it, you are losing.

If you're interested in learning how to trade forex, get in touch with us, and we will happily set you up with free educational resources.

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