Discussion Topic: Choosing the Best Forex Broker
Today, in this article, we will discuss that how you can choose the best and right forex broker to start with. It’s often a question in the mind of beginner traders that how they will select the best broker for their trade. We will answer that questing through this article.
How This Article Will Help you Choose the Best Forex Broker:
In the past decade, the retail forex trading has witnessed a rapid growth in the number of forex brokers offering services in the global market. Presently, the retail forex market is so vast and competitive that just thinking about going through every individual broker's profile can give you a major headache.
In this situation, however, the decision of where to open a forex trading account has become more evidential and relevant. With so many brokers and currency pairs available from around the world, choosing which forex broker to trade with can become a very troublesome task especially if you don’t know what you should be looking for.
To make this easier for you, in this article, we will discuss the qualities and parameters you should look for when selecting a forex broker.
What Qualities You Must Check Before Selecting a Broker:
Though selecting the best broker is not an easy task, we are going to provide 8 qualities which you must check and compare before choosing your forex broker and open an account.
Quality 1: Security and Authenticity of Forex Broker
The most important characteristic that a good broker must have is a high level of security and authenticity. After all, you’re not expected to hand over thousands of dollars to someone who simply claims himself to be legit, right?
Fortunately, evaluating the credibility of a forex broker isn’t that hard. We know that the retail forex trading is a lightly regulated activity in an over-the-counter market. However, depending on the country of operation, forex brokers are often subject to some forms of regulation that can help protect traders’ interests.
There are regulatory agencies all over the world that can help you to differentiate the trustworthy from the fraudulent.
Below is a list of countries with their corresponding regulatory bodies:
- United States: National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)
- United Kingdom: Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)
- Australia: Australian Securities and Investment Commission (ASIC)
- Switzerland: Swiss Federal Banking Commission (SFBC)
- Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)
- France: Autorité des Marchés Financiers (AMF)
- Canada: Office of the Superintendent of Financial Institutions (OSFI)
- India: Securities and Exchange Board of India (SEBI)
Before even thinking about transferring your money to a forex broker, make sure that the broker is a member of the regulatory bodies mentioned above.
For more details, check out our ultimate guide to identifying forex scams.
Quality 2: Customer Service
Brokers and their trading platforms aren’t perfect, and therefore you must pick a broker whom you could easily contact in case of any when problems.
Practically, every broker is different in terms of their style of customer services. Some may introduce themselves as “full-service” brokers offering access to a variety of markets, trading platforms, and services; while others may offer discount brokerages and provides only the basic array of services. Some of them may even promise to allot a dedicated account manager, who will be your direct contact in case of any issues.
But remember that, brokers may be kind and extremely helpful during the account opening process, but may have terrible “after sales” support. The competence of brokers when addressing any account or technical issues is evenly important as their performance on executing trades.
You must open an account with the broker who has a responsive customer service and can provide you answers to all your questions or resolve any problems that may arise.
Our suggestion: Before opening account, make some dummy calls/emails to the customer care to see the response time for your queries.
Quality 3: Trading Costs
No matter what kind of forex trader you are, you will always have to pay transaction costs. Every time you enter into a trade, you will have to pay for the spread, swap, or a commission. So, it is quite natural to search for the most affordable and cheapest rates.
The cost of trading varies from broker to broker. Most commonly FX brokers charge a fee in form of the bid-ask spread that varies in size depending on market conditions. However, you must look for a broker who offers a narrow spread on average while maintaining other qualities described in this article.
Also, some brokers may charge extra commissions for trading. The commissions may be charged on a fixed basis per trade or may be calculated according to trade volume. You must also check for other fees such as fees for account inactivity, usage of margin, non-compliance with account minimums, or even for use of any special brokerage services offered.
Sometimes you may need to sacrifice low transaction rates for choosing a more reliable broker. It’s all about finding a proper balance between security, services offered, and low transaction costs.
Quality 4: Ease of Deposit and Withdrawal
Good forex brokers will provide you a hassle-free experience in depositing funds and withdrawing your earnings.
Brokers hold your money only to facilitate a smooth trading experience. So, there should not be any reason for you to have a hard time withdrawing the profits you have earned.
Your broker should ensure that the deposit and withdrawal process is speedy and smooth.
Quality 5: Evaluate Trading Platform
In online FX trading, the majority of the trading activities happen through the brokers’ trading platform. This implies that the trading platform provided by your broker must be user-friendly and stable.
Though the features available on those trading platforms will vary according to your account type, when selecting a broker, always check the features its trading platform is offering. Some common features to be checked: Does it offer any free news feed or price alerts? Are the technical and charting tools user-friendly? Does it provide you with all the information you will need to execute a trade properly?
It is highly advisable to ask for a demo account that will allow you to test their platforms before starting the actual trading.
Quality 6: Speed and Percentage of Successful Order Execution
It is compulsory that your broker fills your order quickly and at the best possible price. Under normal market conditions (i.e. - no important news releases, no surprise events, and normal liquidity), there should not be any reason for your broker to delay the order or not fill you at a very close to the market price you see when you click the “buy” or “sell” button.
For example, assuming that you have a good internet connection, if you click “buy” EUR/USD for 1.2000, you should get filled at that price or within micro-pips of it. Also, the speed at which your orders get executed is very crucial, especially if you’re a scalper.
If you are a day trader then a few pips difference in price can make you lose a trade that otherwise may be a winning one.
If they are repeatedly failing to do that, then this may be a sign of Forex Bucket Shop Scam.
Quality 7: Dealing Desk or No Dealing Desk
Another significant differentiation among broker services is whether they offer dealing desk or no dealing desk trading. Some brokers may offer both.
When the broker operates as a dealing desk, it will accept the other side of a trader’s position to ensure that the trader always has access to a liquid trading environment. That means your trade will be executed regardless of conditions of the global market. The dealing desk brokers charge fixed spreads and also act as counter-party for trades. But sometimes it may also restrict you from achieving certain gains, as those orders are filled by the broker on a discretionary basis and also it doesn't give you access to actual forex market.
In no dealing desk trading, the broker will provide you direct access to pricing conditions in the interdealer market. Usually, this is done by using an electronic communications network, or straight through processing. Though no dealing desk trading offers you direct access to actual market prices, it can also expose you to variable spreads and somewhat thin liquidity for executing trades.
To know more see our guide on Dealing Desk vs No Dealing Desk Forex brokers.
Quality 8: Margin and Leverage
The last thing to consider is the amount of margin and leverage the broker is offering.
A margin is basically a type of loan offered by brokers that allow traders to leverage their initial capital. So, getting a good margin means you can trade for more amount than that you have in your account.
The amount of margin you will get does not only depend on the brokerage used, but also on the account type you open and the maximum margin amount permitted in the country where the broker is operating. This amount varies significantly from broker to broker. Hence, you may find brokerages in some countries offering a maximum leverage of up to 50:1 and others elsewhere offering in a ratio of up to 400:1.
However, you should be aware that taking high leverage is also a risky job. It's a double-edged sword. That means leveraged trades can multiply your profits in a favorable day, but can also multiply your losses in a bad day. See our guide on using Leverage and Margin.
Excessive and unplanned usage of leverage can lead to a situation of getting a margin call from your broker.
How to Choose Forex Broker – The Conclusion
A wide range of choices among forex brokerages makes it difficult for any trader to take the decision of whom to work with. However, if you follow these eight basic guidelines, you probably would be able to select the best broker for you.
Also, make a note that, the secret of choosing best broker is to find a balance between all the qualities. Selecting a brokerage which complements your trading style can help you reduce trading costs and maximizing the efficiency and security of trading activities.
We hope that you have enjoyed the above article guiding you on choosing the best brokerage for your forex trading. Be with us to explore forex trading, stocks trading, and other money-making opportunities.
Leave us some comments if you have any questions or doubts about selecting forex broker, we will be happy to help you.