forex brokers

How To Select A Forex Broker

The number of forex brokers in the world is roughly in the thousands, and each of them is competing to acquire clients. However, not all of these brokers provide quality service. In fact, some of them operate under false pretenses, which is why it's vital to have an eye for distinguishing the good ones from the bad. By reading this article, you'll know why having a broker is necessary, and by identifying a few considerations, you'll learn how to select a forex broker that's best for you.

What is a forex broker?


A forex brokerage is a company that connects currency traders to the currency market through an electronic trading platform.
In the past, brokers pertain to individuals transacting on behalf of investors, but today, it's more synonymous with a company, a brokerage.

Why do you need a broker?


When you think about it, brokers act as intermediaries between you and other traders. They facilitate the transactions for a fee. So, you might be wondering why there's a need for a go-between to trade currencies. Why not just find a buyer or a seller in the market and deal with them directly?

Well, you can.

If you can find someone willing to exchange currencies with you at an exchange rate that both of you can agree on, then that fills the bill.

However, for you to profit, you need to find someone who'll readily buy the currencies you purchased at a higher exchange rate. Now, if you get the picture, that is the obstacle that your broker eliminates unless you already have a network of at least a hundred people who own stockpiles of currencies that are ready to be traded.

Trading without a broker


Why not trade directly with a bank or a currency exchange?

You could.

You can trade a thousand dollars at a time with a bank without a fee, but for amounts above $10,000, you may need to visit a financial center, which is the case for Bank of America.

You can also do this with a currency exchange center, but the downside in doing this is the very high markup, which doesn't help in speculating for profit. Plus, trading currencies in this manner lacks leverage, which means you can't put down a fraction of the trade size you wish to control.

Therefore, if you can agree that a broker is necessary to find other traders instantly and transact with them in seconds for a very low markup -- not to mention, your access to leverage -- then you can proceed reading.

What do you need to consider from your broker?


Regulation


Why is it so important for a broker to be regulated? Well, it's for this simple answer: the regulatory body is what stops brokers from being in complete control over their investors' funds.

Because if brokers have full autonomy -- meaning that no one oversees them -- they can do pretty much anything with their investors' money.

Regulation safeguards you from fraudulent activities or any action from your broker that only satisfies their interests. Unregulated brokers who run scams can manipulate prices, forestall withdrawal, and possibly even sell their investors' information to third parties.

The regulatory bodies

Forex brokers in the US should have a membership with the National Futures Association (NFA) and regulated by the Commodity Futures Trading Commission (CFTC). Brokers in the UK must be registered with the Financial Conduct Authority (FCA).

Other countries have regulatory bodies of their own, but what's important is you understand the extent of their power over the financial firms within their jurisdiction.

Support


Support doesn't pertain to how brokerages handle customer concerns and complaints only; it also covers their learning resources and the market analysis they provide to clients.

The best way to assess if brokers do an adequate job of providing support is to do a little inspection of your own. 

Here are a few ideas:

Read reviews

Reading reviews about the broker you're considering is one way to get to know the company even more from the perspective of other traders. It's best if the traders who reviewed your broker offer detailed comments about the brokerage's services.

Download their demo

Trying their demo accounts is one idea to understand how their platform works and its available tools. It also gives you an idea if their sales team is pushy. Some brokers employ very obtrusive sales staff in that they will call you almost every day to convince you to open a real account.

Stay away from these brokers because this may be indicative of possibly lousy customer service. Why? Well, if they're obtrusive to call you every day, it means that they don't respect your time and decision. They're just keen on imposing their will in reeling you in as a client.

Try a small account

You may have a hundred grand ready for trading, but one trick to get a feel for their customer service and overall product and service is to start small.

First, throw in $100 to your trading account. After some time, call or email the customer support for any question or concern you may have. Then, take note of how quick they were to respond and how they treated you.

Products


The products are fairly easy enough to assess because your job here is to look at the financial instruments you can trade with them. Do they have all the major and liquid currency pairs?

Do they offer the currency pairs you want to trade? Are all the commodities offered?

All the available financial products are most likely published on their website or are available in their demo trading platform.

Spending a few minutes of your free time to examine the contents of their site will allow you to soak up as much information as you need about their offerings.

Forex broker fees


Lastly, you need to check for three things: commission, spread, and fees. The following are some sample questions you can ask your broker:

Commission

  • Do you charge a commission for every trade closed, and how much is it per fixed-volume traded?
  • Do you offer a reduction in the commission if a certain volume is reached, or do you keep the same amount as it is?
  • Is a commission the only way you charge for your service, or do you profit from spreads too?

Spreads

  • Are the spreads fixed, or is it variable?
  • What is the minimum spread for an active pair like the EUR/USD?
  • Do you always execute on the spreads that you guaranteed? Is there a way for us to verify that?

Fees

  • Are there any fees that I should know about?
  • What about fees for a dormant account?
  • How about annual fees?
  • Monthly fees
  • Overnight charges or swaps

So, this marks the end of this blog post. If you liked this article, let us know by dropping us a comment below or share this on social media to help your friends find the right broker for them.


Compare Brokers

4.0
forex.com logo

FOREX.com

BROKER: FOREX.com

Minimum Deposit: $50

Spread (EUR/USD): 1.1 with Standard Account

Regulation: FCA, CFTC, FSA, IIROC

3.5
city index logo

CITY INDEX

BROKER: CITY INDEX

Minimum Deposit: £100

Spread (EUR/USD): 0.69 with Standard Account

Regulation: FCA, ASIC, MAS

16 thoughts on “How To Select A Forex Broker

  1. Some excellent advice and guidelines to use when selecting a FOREX broker. Just as with anything that involves investing your money, I think having a plan and knowing what to ask is so important so you avoid unpleasant surprises later when you have charges you did not expect or perhaps do not achieve the return that you expected.

    This can happen in any case but at least you go into a relationship with the broker knowing exactly what you will be provided the level of expertise that you will have working for you, and the charges that you can expect to pay for services and transactions.

    The checks that you have listed are comprehensive and will work well to get this information. The advice to try them first using a small amount is a good idea. That way you get a feel for the attention you will get and can see if the relationship will work out without much risk. Long term this is a good solution. I have bookmarked this site. Thanks!

  2. Thank you for sharing such informative information about finding the proper broker, I think that trading alone without a broker can bring in high risk. I will definitely follow your rules for finding a broker as I am very interested in forex trading. There you can earn nice money if you know what you do.

    1. Hi Daniel,

      There’s indeed a better chance of gaining more profit from trading currencies, BUT that comes with its EQUIVALENT RISK.  And most of this risk and reward tradeoff can be ascribed to the use of high leverage.

      It’s better for a beginner to start learning as much as possible before trading because it helps in discovering if you’re mentally, emotionally and financially suitable for this kind of activity.

      Also, it’s not just high risk that you incur if you trade currencies by yourself, but it’s also the high transaction costs.

  3. I had never heard of a Forex Broker before. This was such a great informative post about buying and selling currency.  I love that you have given all the things that you need to watch for when looking for your own broker. 

    Currency nowadays is so different than years ago.  I never really thought about people buying and selling currency.  Now it only makes sense as to why you would need to be cautious about who you do business with. 

    Great job.

  4. I used to think that trading forex is a really risky thing close to gambling but after a while, I see that it’s all a calculated risk. Using a credible broker helps make the risk a bit less than before. I think with this post, one can decide which broker is credible and understand how they can help risk losing money too. Great post and I’ll definitely share the post.

  5. Thank you for sharing this really helpful article with us on finding the right FOREX broker. So there are not many chances of losing money, otherwise, you can win. Your tips for choosing a broker and the checks you have mentioned provide us with many useful information. This is something new for me but I definitely will share it.

  6. Hmmm, now I know what to look at when deciding on a broker. Thanks for the info. I always thought that trading forex is just gambling, but apparently it is more than that.

    Love how you break everything down so that we can easily consume it, now I am really excited to buy and sell currency. Hahha.

  7. Astounding audit. I began exchanging 2years back however I later ceased because of certain brokers issues. Attempting them with a little sum is the best plan to limit hazard. I will pursue your suggestion to discover a specialists so as to get a valid one. I think comprehending what to do will go far to limit misfortune in forex. You’ve worked superbly, Useful post.

  8. A broker is the reason we have the opportunity to leverage on our stock trading and they are integral to our success as forex traders. Though as you stated, one may decide to trade with banks directly but the cost of getting started and the risk involved is way too high than being considered. The tips you shared up here concerning how to select a forex broker is great and would surely be worthy of helping a lot of people. Thanks

  9. Just as not planning out things can lead to loss of valuables and important things, so also is not selecting a right broker before going into forex. I agree that not understanding and selecting the right one can lead to a lot of risks. I am very interested in forex trading and I’m glad you could put up points on what to do to get a good broker. I’ll be sure to put your tips in mind because I see there is a big opportunity in forex. Thanks for the help.

  10. Thanks for sharing such beneficial information here. Forex trading is indeed a very crucial one in which one must be really careful when dealing with. I wouldn’t want to risk trading without a broker because there are instances I would need guidance and that’s where a broker comes in. I am glad to have come across these steps you have given in choosing a good broker. Thanks for sharing

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