The purpose of this article is to help all aspiring forex traders select the ideal forex broker thought which they can access the forex market. A mere online search and clicking on the first result that Google serves you with is not a reliable method and you should definitely not trust your money to a broker whom you simply stumble across on a search results page.
A heart to heart on how to choose your Forex Broker – Busting the myths and heading towards trading success
Though daunting at first, finding the right forex broker for you is completely doable provided you approach it with due caution and factor in all the aspects you should take into consideration. Read on as we refute popular myths, which may lead you to false decisions and let us reveal our tips and secrets on how to make finding the best forex broker possible.
What does a broker do and why do you need one?
Trillions of dollars are literally traded on the forex market on a daily basis, rendering it by far the largest financial market in terms of traded volume. Before the onset of online retail trading however, forex trading was only possible for big banks, financial institutions, funds and multinational companies, who are still the major players in the game. What has changed however nowadays is that now everyone can participate in forex trades, provided they have a broker to give them access to the forex market.
Since making a forex trade in reality means selling one currency and buying another, the broker’s role is to connect each trader with buyers and sellers for those currency pairs they are trading on. To make your trade possible, a forex broker will either match it to other traders connected to them, or transfer it to the interbank market.
On your own you could have never gotten access to the interbank market of currency exchange, due to the very high capital requirements in place, since this market records billions worth of transactions daily. Through the introduction of leverage, which means controlling much more money than you actually hold in your accounts, thus making the placement of bigger trades possible, forex brokers made it possible for everyone to trade, as they use their own capital adequacy to allow traders participation in the interbank market.
The real upsurge in forex trading however, actually came when forex brokers moved online and started offering retail trading services to individuals across the globe. This has led to increasing interest in opening trading accounts by individuals, most of whom knew nothing about trading in the past. And this is why the selection of which broker to choose to trade via becomes so crucial.
Refuting Popular Myths About Forex Brokers
The boom in online retail forex trade and online retail forex brokerages has meant that the internet now plays an important role in shaping people’s decisions and views about all things forex trading related, including one’s choice of broker. Unfortunately, this had led to the creation and subsequent consolidation of various myths about forex brokers, which if not refuted could lead aspiring traders to take their decision about their preferred broker based on wrong assumptions and not according to reliable criteria and making up their mind independently. Busting the most popular of these myths will help clear your view by separate fiction from reality:
MYTH No. 1: THERE ARE FOREX BROKERS THAT COOK THINGS UP AND TRADE AGAINST YOU
This myth is not valid simply because it is a fact that all forex brokers work according to one business model. There may be differences in their offering, in their attempt to differentiate and stand out, but the main principle is the same. The application of this model is not preventing traders from making money, through successful trades.
By saying this we are not implying that all forex brokers are the same or that they all work equally well. In fact, yes it is possible for brokers to affect a client’s trading position and of course it is also possible that a conflict of interest may well arise between broker and trader. In reality however, most brokers nowadays do not affect the trading positions of their clients. In short, if a trader conducts a profitable trading transaction, then the broker cannot prevent the trader to realize the profit. Not unless they are not a broker, but a crook. And yes it is also true that crooks and dishonest brokers do exist in forex trading as they have always existed in all other spheres of financial activity or life in general for that matter. But they are short-lived since the market itself ejects them fast. Regulatory authorities, watchdogs, but mostly the scrutiny and information sharing that traders engage in mean that the crooks are uncovered fast. In short, if considering any of the established, untarnished brokers you are safe and don’t need to worry about your broker cooking things up in some dark room and rigging your trading positions, thus foiling your chances for trading success.
MYTH No. 2: YOU SHOULD STAY AWAY OF ALL OFFSHORE COMPANIES
The offshore licensing and registration of forex brokerages is a hot trend in the industry, mainly caused by increasing pressure on brokers from regulatory authorities in non-offshore jurisdictions, coupled with the more favourable tax and other conditions brokers can benefit from when setting up their business in offshore locations. To find out more about the how’s and why’s of this, you can read our enlightening, pertinent article on How to Obtain An Offshore Forex Broker License when Setting up a Forex brokerage .
This trend has mistakenly led many on the internet arguing that those brokers that are registered in offshore zones, such as Cyprus, Malta and numerous island states across the globe are to be avoided, as offshore registration is wrongly equated with lack of control and shadowy operations. This is plain wrong, and those who maintain this position clearly do not understand that offshore countries are simply countries offering foreign companies special conditions for conducting their business in their jurisdiction.
Obviously offshore locations offer brokers and other firms, incentives to set up shop there, including much lower taxation levels and brokers, who can still access and serve their clients across the globe do prefer to proceed with offshore registration. This a strategic decision that also makes solid financial sense, but doesn’t mean that the broker is dishonest, wants to operate uncontrolled or has something sinister to hide. In short, the broker’s country of registration doesn’t really matter or it matter’s much less than others would want you believe, and this means that when searching for the best forex broker for you, you shouldn’t eliminate all offshore registered brokerages.
The location of company’s registered office alone is no reason to distrust it or think it is unreliable and unworthy of your custom.
Similarly to this notion, we have also recently put forward within the content of another article, that is not only the offshore vs onshore registration dilemma that is misportayed, but that in fact, so is also the regulated vs unregulated broker dichotomy. In short, we cannot accept that regulated brokers are by default better than unregulated brokers, but rather dare to say that under certain conditions, an unregulated broker may even be better. If you are intrigued and want to know more about this unconventional proposition, you can read the entire argument of Regulated Vs Unregulated Forex Brokers on our step by step guide where using a case‐study approach we guide marketers on how to become an Affiliate with Ospreyfx
MYTH No. 3: STUDYING THE ONLINE BROKER REVIEWS IS A MUST
This myth is so easy to refute because plainly the vast majority of reviews, especially positive ones that you can read online about brokers are plain out fake. Especially those reviews that are planted on review sites by brokers themselves for a fee, or those reviews featured on blogs and other online venues, posted mainly by affiliates of the brokers, who stand to earn a commission for referring traffic and leads to a broker’s site.
On the other hand, negative reviews or real-life complaints about broker’s posted in chat rooms or other venues populated by traders may contain much more useful and accurate information. However, they too should be approached with a pinch of salt, because usually not enough information is contained to be able to make a valid conclusion whether the broker is indeed in the wrong, whilst complaints usually contain a lot of emotions, of anger or frustration, which may obscure the actual facts of the conflict at hand.
Moreover, when reading a negative review or complaint we cannot know whether the dispute was resolved in the end and how. Perhaps a broker was in the wrong, but apologized and rectified the situation. So, we shouldn’t blacklist them just because a complaint was put forward. On top of this it is entirely possible in the fiercely competitive forex landscape that a negative review about a broker was actually written by a competitor, using unscrupulous methods to gain an advantage. It is not ethical, but it does happen and it should make us wary when reading a negative review and lead us not to take it at face value.
What To Look Out For When Choosing A Forex Broker
Having adequately addressed and debugged the three main myths circulating around about choosing your forex broker, it is time to let you in to some important tips with regards to what it is you should really be concerned about and look out while you are in pursuit of your preferred forex broker:
Are there re-quotes and slippages?
The presence or absence of requotes and slippages is a key parameter you should examine when searching for the best forex broker for you. A re-quote is when you are unable to make a transaction at the current market price, and are instead getting an error, “no price” message and signal from your broker’s server. This results in your order not being accepted and executed. A slippage is when your broker fails in executing your order at your desired price, and the transaction proceeds according to the nearest following quotation, which may be either above or below the price you wanted and it is well possible that execution occurs at a price level that is less favourable for you. Market conditions, especially at times of high volatility, for example during important economic events or announcements cause sudden changes in the quoted forex prices. And it is possible that, due to the speed of the actual trading in real-time, there is not enough time for your position to be opened at the desired price, and it either doesn’t go through at all, opens at the new updated quoted price. Which of the two will actually happen depends on the settings of your broker’s serve, but this is an information you need to happen, especially if you are planning to trade during the release of important economic news in an attempt to catch a great price movement and increase your chance for profit. Unfortunately, though, evaluating the quality of the execution of orders, which is crucial when choosing your broker, cannot happen unless you actually open and fund a live account and start to trade. It is not possible to check this when trading on a demo account, since there are different servers managing demo accounts and different for real accounts. The only real way to properly evaluate and address this issue then would perhaps be, provided your available funds allow it, to open up live accounts with more than one brokers and compare how they fare with order execution under live trading conditions.
The spreads and commissions for basic instruments
As spreads and commissions are pivotal in effectively implementing a profitable trading strategy what you should be seeking in a broker is clarity in the trading conditions, i.e. the spreads and commissions to be applied, for the trading instruments that interest you the most and which you are planning to trade in more often. It is a fact that most brokers offer very similar trading conditions for transactions in the most popular forex currency pair, namely the EUR/USD, but the story is completely different when looking to trade a specific share or index, or some newfound cryptocurrency. So, decide the instruments you are interested in and compare the trading conditions for those instruments, from broker to broker, remembering to compare like with like and not apples with oranges.
The real cost for depositing or withdrawing funds
Though many brokers say they don’t charge any commissions when a client deposits or withdraws funds, it is often the case that there is either some small print somewhere or a hidden fee that pops up, meaning that deposits and withdrawals are not in fact costless. It is thus important when comparing brokers and before opening an account to be absolutely certain and clear what the available methods for deposits and withdrawals are, what exactly the process is for depositing or withdrawing and what are all the possible fees and costs that may be incurred when using each method. You should also clarify whether you can only withdraw using the same method used when making a deposit. If in doubt about any of these, or if the way the information is presented one a broker’s site on these matters is not clear, don’t hesitate to call the broker’s customer service team and have an agent walk you through all the details.
The offering of bonuses, rebates, recharge and contests
As a general rule you should approach the various bonus and other special offers promoted by broker’s with due caution, as such methods are usually used in order to make you deposit more funds in your account and are usually offered to be used for engaging in more trading, but not for withdrawal. In this way brokers allow you extra leverage and this could potentially be a good thing, provided it doesn’t interfere with the implementation of your trading strategy and lead you to take decisions that otherwise you wouldn’t have, forcing you undertake additional and unnecessary risks.
Making use of a bonus or special offer offered by a broker is not a bad idea and you should compare and take into account what is on offer by each broker, provided it doesn’t force you to increase your trading volume on purpose simply to qualify for a bonus and end up violating the principles of your trading strategy.
The trading platform used by brokers
Brokers using their own proprietary trading platforms should not be excluded just for that as chances are they have invested heavily in developing them and have the capacity and technical expertise and supporting staff to ensure a smooth trading journey, or perhaps not? As a personal opinion we strongly believe that the MetaTrader platforms, the MT4 and MT5 are far better than any proprietary or hybrid individual brokers have come up with. Especially for novice traders, it is important to trade on a tried and tested, reliable platform that has over the years being established as the industry standard. Our advice would then be to show preference to brokers using the MetaTrader platforms when comparing brokers. For a more detailed account on the merits of these platform, check out our dedicated article on mt4 / mt5 metatrader trading platforms
Having a demo account and several account types
Surprisingly not all brokers offer a demo account option and this is perhaps one point that should help you eliminate some from your list when comparing, because you will need a demo account for practice purposes, especially if you are just starting out in the world of trading.
Moreover, most brokers offer several account types each requiring different minimum deposit levels and being attached to differing sets of perks and features. When comparing brokers, it is worth thoroughly examining what account types are available and what is offered with each one, to discern which best suits you and matches your needs and requirements. Having covered the basic areas we feel you should look out for when seeking to discern the best forex broker, let us know turn to a couple of other interesting and important considerations that should be taken into account.
When is the right time to ditch the demo mode and jump into the action?
As already pointed out, for first-time, novice traders the wise and prudent thing to do is choose a broker that offers a demo account and start trading in demo mode, allowing them to get a good grasp of the fundamentals of trading and also get a good command of how to effectively trade on the specific platform offered by their broker, without risking any real money. Knowing when the time is both right and ripe to switch from your demo account to a live, funded account and start trading for real, is a crucial milestone in your trading endeavour, so let us try to help you identify when that time will be.
The most significant barrier you need to cross before starting to trade with real money is having devised very clearly in your head the trading strategy that you will be following. This entails having defined your entry and exit points for each transaction, understanding how to apply technical analysis and take into account the trade volume for each transaction, and recording the maximum risk for each transaction. If all this makes no sense to you, then stop here, as you clearly not ready to switch to a real trading account.
Ideally, and if you have chosen a solid broker, charts, price and order execution speed should be the same whether you are trading on a demo account or a real one. However, what is entirely different is your own emotions, psychology and stress levels, since through a real account all profits and losses are real money! This is why the rush or panic of the moment may blur your judgement and prevent you from following your strategy effectively and correctly.
In a nutshell then, don’t switch from a demo account to a real one before you have at least spent a few days trading in demo mode, during which you have decided on your trading strategy, have tested that it works and are fully confident you know what you are doing. It is equally important when deciding to make the switch that the money with which you will fund your trading account for the first time is not your last and that the amount committed does not deplete your savings. In fact, it is best if the amount is insignificant to you and that you will not mind losing it, because chances are that if you put all your eggs in one basket, fear of losing that money will interfere with your good judgment and you will succumb to the pressure of real time trading, probably being unable to close an unprofitable trade on time.
How to act when in conflict with your broker
No matter how prudently you choose your forex broker, it is highly likely that at one point or another a conflict might arise between you, whether it is over a price slippage, an order that was not executed or not executed on time, or some kind of hidden fee that you were charged that was not explicitly stated in the initial terms. When this happens, you shouldn’t panic, but rather follow these simple steps:
Collect all the supporting documents and evidence to substantiate your complaint and clearly formulate a written request explaining what happened and what it is you are contesting. Contact your broker in writing, using an official communications channel, for example write a ticket in your account or email the broker, and then wait to receive an official answer. If the answer is not forthcoming, or you are not satisfied with the response you got, or even more if the reply does confirm that the broker is in the wrong but does not offer to active take measures to rectify the situation, then you have two options. If your broker is regulated then you can address your substantiated complaint to the pertinent regulatory authority.
Often, even notifying your broker that you intend to file an official complaint with the watchdog is enough to grab the broker’s attention and often gets matters resolved without need for further action, as brokers don’t want to get into trouble with regulators.
However, if the broker is unregulated your safest bet is to mount up the pressure by calling the support team, as it more effective when talking to an actual person, who is obliged to give some sort of response in real time, and warning them that you will be vocal about their wrongdoing in all available venues, including review sites, trader chatrooms and on social media. Oftentimes, this is also enough to force them to take action towards resolving the conflict in a mutually acceptable manner. If it doesn’t, then feel free to contact a member or our team to further guide you on how to handle a complaint with an unregulated broker. More than mere brokerage
As we are approaching the end of this article, I hear you still pondering, “so who the heck is the best broker”? If you are still looking for a straight, single answer to this question you are in for a disappointment! The simple reason there is no one answer, is that there is no single broker who is simply the best. The best broker for your own particular case, may well not be the best broker for the next person. The question then should not be who is the best broker, but instead who is the best broker for me?
In trying to give the right response it is also worth taking into account that most forex brokers have over time enriched their range of services provides to extend far beyond mere brokerage services. The reason for this is simply because the online retail forex landscape is so inundated and so fiercely competitive, that brokers need to do their utmost to enrich and differentiate their offering, in order to stand out and remain relevant, as well as competitive.
Within this framework of differentiation, many brokers have chosen to invest heavily on forex trading training and education, thus putting at the disposal of their clients a vast array of material, in the form of ebooks, webinars and even one on one training sessions. Such services are not only of immense importance for novice traders who are in dire need of learning the basics, but also for more seasoned traders and one cannot know everything as the more educated and prepared you are the better results you can yield.
For an in-depth account of innovative ways put forward by brokers and investment platforms to enhance the trading experience of traders and maximize their chances for success, including the very popular and effective option of copy or social trading, you can read our dedicated post on the matter of copy trading and innovative investment platforms
Besides social trading, many brokers have nowadays incorporated the provision of trading signals to their core offering to their clients, while also making PAMM accounts available, via which you can trade without actually doing the trading yourself. PAMM stands for percentage allocation management module, and through such an account you allocate your funds proportionally to qualified traders and/or money managers who do the actual trading on your behalf.
Top notch brokers also provide a dedicated account manager for their clients, albeit this is a privilege reserved only for those ready to commit big amounts in terms of funds deposited. Having a personal account manager giving you trading tips and be available to always offer advice is really helpful not only for novice traders, but also for seasoned traders as well, as they can gain new ideas and perspectives to take their trading to the next level. The list of additional services offered by forex brokers cited above is not exhaustive, but indicative, serving the purpose of illustrating that there is so much more to consider when choosing your broker. To put it simply, in order to discern who is the best broker for you, you should find the broker whose offering as a whole better suits you, better meets your needs and matches your level of expertise, which is more likely to better gear you be a successful trader and inspires you with enough confidence to trust them with your funds.
The top three considerations prior to choosing the best broker for YOU
As a parting thought, and since we have established that the best broker for you can only be determined by you alone, remember when selecting to factor in that whether a broker is indeed the best for you largely depends on:
How much risk you are after, or better yet, how much risk you can handle
The only one who can clearly know your own risk appetite is none other than you. Since higher leverage comes at a higher risk, but can also lead to much greater profits, it is entirely up to you match the leverage ratio that matches the risk level you are after. If you are willing and able to risk more then go for brokers offering high leverage rations, while if your risk appetite is lower then seek brokers offering lower leverage too.
How much you can deposit as a minimum
All brokers have different minimum deposit requirement for allowing you to open an account and usually the account types with the most perks and privileges are those with substantially higher minimum deposit needed. Therefore, how much you are able and willing to deposit as a minimum, initial amount is also a determining factor when searching for your broker of choice. Your best option being in this case, a broker who gives as much as possible for the amount of minimum deposit than you want to place in your trading account.
What is your preference on brokerage charges
Most brokers take their charges either in the form of spreads or as commissions, but each of these systems carries different characteristics. Commissions stay the same consistently under any market conditions, whereas spreads rise with volatility. However, since commissions are fixed and spreads fluctuate it may be better to choose spreads, since markets are only highly volatile for short instances, which don’t usually last for more than a few hours per day. In other words, again the choice you should make depends on when you want to trade. If you will be trading under volatile trading conditions choose a broker that charges commissions, while if you will be trading when there is no market volatility then you should choose a broker that charges spread, as then charges will ne lower.
The concluding remark can be no other than to repeat that finding the best forex broker is an impossible task, but finding the perfect broker for you is very much attainable, though it does require some effort on your part, mostly knowing exactly what you need and are looking for and matching that with the offering of the myriads of forex brokers to find the most fitting. When you do find the match however it could take your trading experience and chances for profit to another level, so it is very much worth the effort as a process. If you take into consideration all the points raised above you will be in a very good position to find your best forex broker and will definitely be able to rule out all those who would be very bad choices in your case.
Frequently Asked Questions (FAQ) - Topic-related Questions
ECN forex brokers, which is an abbreviation for Electronic Communication Network brokers, is one type of forex brokerage available, along with dealing desk or market maker brokers and STP brokers. All types of brokers are the medium which opens up the forex market to individual, small scale, retail traders, but though all types of brokerages allow you to trade, the type of access they ensure and provide differs.
What distinguishes ECN brokers and is perhaps their greatest advantage, is the fact that they do not act as middlemen or take one side of the trade, but instead make it possible for traders to directly contact the big banks, financial companies and liquidity providers in general, based on an extensive, fully automated communication network which matches the bid and asking price of each trading transaction.
Thus, ECN brokers are not interfering in the process, nor do they stand to lose or gain depending on the outcome of a trade placed by their client, by are compensated through a fixed commission instead. By gathering, combining and providing access to a great bundle of quotes from a variety of liquidity providers, ECN brokers enable their trader/customers to choose the most suitable bid and ask prices and obtain the most reduced spreads possible. Our enlightening post on ECN brokers is the ideal venue for interested traders, especially novice ones, to find out why they should be seeking an ECN broker and what to look out for in the process.