How to Choose Online Forex Broker

There is no shortage of Forex brokers online and each one of them feels that they are superior to the rest. This can present a daunting challenge to traders hoping to make their mark in a Forex trading game by selecting Best Forex Brokers that is best suited to meet their unique requirements. 

There are a number of things that must be taken into consideration when selecting a broker. The most important are

  • Regulation
  • Security
  • Types of Broker Model
  • Initial Deposit
  • Minimum Balance
  • Account Types
  • Spreads
  • Deposits and Withdrawals
  • Leverage Options
  • Trading Platforms
  • Customer Support
  • Execution Speed

Check out top 10 forex brokers for 2023

Type of Brokers and Business Models

There are four basic types of broker’s that offer retail investor accounts for forex trading. These are Market Makers, Electronic Communication Network (ECN), Direct Market Access (DMA) and Straight Through Processing (STP) brokers.

Market makers are dealing desk brokers, while ECN, DMA and STP brokers provide no dealing desk (NDD) order execution. Using a Dealing Desk broker or NDD broker can affect the spreads and associated trading costs.

How to know if a Forex broker is regulated?

Regulation is a critical factor to consider when choosing a Forex broker. Here are some ways to know if a Forex broker is regulated, as suggested by our experts:

Check the broker’s website: Most regulated brokers display their regulatory information on their website. You can usually find this information in the footer section of the website. Regulated brokers will mention their regulatory body, such as the Financial Conduct Authority (FCA) in the UK or the National Futures Association (NFA) in the US.

Ask the broker: If the regulatory information is not displayed on the broker’s website, you can ask them in their live chat or support channel. Regulated brokers should be transparent and open about their regulatory status, and they should be happy to provide this information to traders.

Do your research: You can research the broker on Google or other search engines to check if it is regulated or not. There are also regulatory databases that you can search to confirm if a broker is licensed and regulated. It is important to also check if the broker has a good reputation in the industry and among traders.

Leverage and Margin

Depending on the broker, forex participants may have access to leverage made available in their margin account. For example, using 50:1 leverage, a trader with an account size of $1,000 can hold a position that is valued at $50,000. Some brokers offer as much as 200:1 leverage. Leverage works in a trader’s favor with winning positions, since the potential for profits is greatly enhanced. However, leverage can quickly destroy a trader’s account since the potential for losses is magnified as well. Use leverage with caution.

Account Types

Variable Spread Account Types: fluctuates with market conditions

  • Commission Accounts: Low spreads with flat-rate commission fees, often referred to as ECN-style account types.
  • No Commission Standard Accounts: No commission fees are charged on top of the spread
  • Fixed Spread Accounts(micro accounts): predetermined fixed spreads remain constant regardless of market conditions

Regulation and Licenses

Forex business is regulated differently throughout the world, and official registration with the financial authorities of any particular country can be very specific.

It is essential that a trader or investor chooses a brokerage company which business activity is under control of a relevant regulatory agency. Many brokers choose to get registered in offshore jurisdictions, whereas other forex companies choose to stay onshore. Generally, offshore statutory provisions are more liberal and easier to comply with.

Regulatory agencies with fundamental approach and strict principles are based in Europe (first off, in Switzerland and Germany), United Kingdom, United States, Japan and Australia.

It is absolutely necessary that the trader has clear understanding about the regulatory status of their brokerage company or dealing desk. Regulatory status is an essential part of any business entity providing forex services and by this any potential trader can form an opinion about reliability of the forex broker.

A US broker must be registered with the US Commodity Futures Trading Commission (CFTC) as a merchant and retail Forex dealer. It also must be a member of the NFA (National Futures Association). These credentials are usually listed in the About Us section of the broker’s website. Equivalents of these trade associations and regulatory bodies are present in nearly every country in the world. Depending on where their broker is based, traders should always research and look for these credentials. In this respect, it’s also worth researching the year when the broker obtained its license as this might carry some significance as well, in regards to the overall reputation and operational history of the broker.

Here is a handy list of the most-respected regulatory bodies by country:

  • USA: Commodity Futures Trading Commission (CFTC)
  • Switzerland: Swiss Federal Banking Commission (SFBC)
  • UK: Financial Conduct Authority (FCA)
  • Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)
  • Australia: Australian Securities and Investment Commission (ASIC)
  • Canada:  Investment Information Regulatory Organization of Canada (IIROC)

Security

There is little sense in opening a trading account if deposited funds are not secure with the broker. A reputable broker will have a clear history and successful track record. Furthermore, they will be a member-in-good-standing with a financial regulatory authority.

Every regulated broker is subject to a “Net Capital Rule” which prescribes a minimum amount of capital to be kept in liquid form. This way investors are protected with a ‘safety net’ in the event that a broker is forced to close. In addition to the requirement of maintaining minimum capital requirements, regulated brokers in most jurisdictions are required to keep all client funds separated in segregated accounts so that client funds won’t accidentally (or purposely) be used for any reasons other than to execute the client’s trades. Some nations, such as the United Kingdom, even offer government-backed deposit insurance for its regulated brokers so that clients can recover part or all of their funds even if the broker manages to misappropriate them. 

Multi-Feature Trading Platform

The trading platform is the gate between the retail trader and the markets. It is also the tool through which the trader performs his trading. A proper, simple, fast and user-friendly trading platform is critical in trading successfully.

When it comes to Forex, trading activities normally happen via the brokerages’ trading platforms. All good brokers in this industry cater to customers with intuitive yet multi-feature platforms, the most commonly used ones being MetaTrader 4 and MetaTrader 5.

When choosing a Forex broker, make sure you check what features its platform supports. Some of the must-have functionalities you should look out for include charting and technical analysis tools, automated trading, real-time quotes, options for customization, multiple timeframes, trading through charts, different types of order execution, and backtesting. Multi-language support is always a plus.

Spreads and Commissions

In the Forex world, spreads are of utmost importance. Given that brokers receive commission for their services by widening the bid-ask spread past quoted values, a wide bid-ask represents a larger sum of money being taken from the profit margin and given to the broker. Traders are required to pay this fee regardless of whether they gain or lose the trade.

Spreads and commissions are next on the list. All brokers out there profit from the spreads built into the bid/ask prices or by charging commissions on your trades. There are also firms that have no fixed commissions whatsoever but compensate for their absence by using steeper spreads.

Spreads are either fixed or float based on market volatility. Suppose, for instance, the pair GBP/EUR is quoted with a bid/ask price of 1.1535/1.1539, which corresponds to a spread of 4 pips. Thus, if a market participant buys it at 1.1539, the value of this position has already dropped by 4 pips because it could only be sold immediately at a price of 1.1535.

Initial Deposit

While most new traders would prefer to keep their initial investment smaller until they ‘get their feet wet’, many well-qualified brokers choose to keep initial investments higher in hopes of ensuring that they are only signing on the most serious traders. Unless you only have a minimal amount of funds, the initial investment should be one of the last things considered when deciding on a broker.

Minimum Balance

The term “minimum balance” refers to the amount of money the trader needs to keep in his/her account to keep the account open and to receive the services he/she has signed up for. Obviously, the smaller this amount is, the better it is for the trader.

Deposits and Withdrawals

It is never wise to trade Forex if it is difficult (or impossible) to easily withdraw earnings. Ultimately, the broker you choose to work with must facilitate account termination in the event that you are not satisfied with the services they offer, regardless of whatever reasons for account closure you might have.

On the other end of the spectrum, there should be no problems with the depositing fund with the broker. If the deposit process is not an easy transaction, it is unlikely that the broker is capable of ensuring a great trading experience.

Each forex broker has specific account withdrawal and funding policies. Brokers may allow account holders to fund accounts online via credit card, ACH payment, PayPal, wire transfer, bank check, or business or personal check. Withdrawals can typically be made by check or wire transfer. The broker may charge a fee for either service.

Fast Speed of Order Execution

The speed of order execution is of essential importance, even more for those who engage in day trading and place market orders. It is of utmost importance that your brokerage fills your orders with lightning speed at the best possible prices.

If order execution is slower, the prices might move a few pips until the broker fulfills the order, which reduces your chances of winning this trade. The average order speed at the best Forex brokerages is as fast as 0.001 seconds.

Customer Service

Forex trading occurs 24 hours a day, so a broker’s customer support should be available at any time. Also consider whether it’s easy to get a live person on the phone. A quick call to a broker can give you an idea of the type of customer service they provide and average wait times.

These are only a few of the things that novice Forex traders must be wary of when researching and selecting potential online brokers. With a little research and a well-thought list of criteria, it is possible to enjoy a safe and profitable trading experience.

How does a forex brokerage account work?

Forex brokerage accounts work in slightly different ways depending on the region you trade in, so how it’ll work will be determined by which broker you choose. We try to make our forex accounts simple to use.

The following is a summary of how a forex brokerage account will work:

  • A forex brokerage account is either an investing account (where you buy actual currencies and own the money outright) or a trading account (where you’ll speculate on currencies’ values in the market.) With us, you’d open a CFD trading account, which we’ll explain a bit further on
  • Because the forex market never sleeps, a good forex brokerage will give you 24/5 access to foreign exchange trading. With us, you can trade forex from 5am Monday to 6am Saturday (UTC+8). These long trading hours are made possible because forex transactions are completed over the counter (OTC), rather than through a central exchange
  • You’ll then need to select a currency pair to trade in. With us, you can trade over 80 currency pairs, including major pairs like GBP/USD and EUR/USD, but also more minor and exotic pairs like USD/ZAR or AUD/CNH
  • Forex is traded in lots. These are standardised ‘batch sizes’ of currency pairs you can speculate with. For example, a standard lot is 100,000 units of the base currency – but you get smaller denominations as well. So, before you get started, you’ll need to determine the lot size and amount you’re comfortable with spending
  • Remember, it’s not just about lots – both your position size, as well as the price of the instrument, need to be factored into the cost. Plus, other fees and charges may apply
  • The way a forex brokerage account works is that you are in charge, not a fund manager. So, you’ll need to watch and study the market movements of the currencies you’re trading on and keep close watch of any open positions, setting alerts so as to not miss any significant moves
  • For the same reason, you’ll also want a good risk management strategy in place to maximise your chance of profits and minimise your chances of a loss

Can a forex broker go bust?

There are never any guarantees and even regulated brokers can default. The most famous example in recent years was MF Global. However, choosing a regulated broker means there is a government agency that will be working on your behalf if you cannot access your funds. Regulated brokers are required to segregate client money into a separate bank account than the account the forex broker uses for business operations.

Are forex brokers reliable?

The retail forex industry has evolved a lot since its early days. There is now a lot of competition amongst brokers, resulting in better trading conditions for clients, enhanced product and service offerings, and continued investment in new technology.

If traders choose a broker that is regulated in a reputable jurisdiction and has a good reputation online, there’s less to worry about when it comes to starting to trade. Of course, things can still go wrong, or traders might find that the broker’s services don’t meet their specific requirements. However, a reputable broker will have procedures in place to deal with clients´ concerns and complaints and address them properly. Dealing with a regulated and reputable broker should also give traders some assurance that they will have fair trading conditions and that the platform will perform as promised.

For additional peace of mind, traders can open an account with a broker where client funds are protected – whether it’s all or just up to a certain amount – or where Client Money Insurance is part of the service. Traders can also ask the broker where client funds are held – if it is in a reputable financial centre or offshore.

Overall, if traders conduct some basic checks, they should be able to find a reliable broker without much effort.

Is $100 enough to start trading forex?

Yes, it is possible to open an account and start trading with only $100. However, be aware that the options available will be limited, and unless you trade recklessly or with high risk (which is not recommended, not least because it could help set bad habits), trader’s returns will be limited. While a return of 2% on a single trade might sound like a great result, it may be less motivating once realised it only resulted in a $2 gain. 

While starting small can be a good way to learn the ropes without risking too much capital, there is always the danger that – unless traders are very disciplined – they’ll get carried away and start risking a larger percentage of their capital to maximise those returns.

Of course, the solution to this is not to deposit more funds if: 

  • Not ready for it
  • Cannot afford to lose them. Instead, consider going back to your demo account to keep testing your strategy until you feel comfortable.

The Bottom Line

If you have confidence in your forex broker, you will be able to devote more time and attention to analysis and developing forex strategies. A bit of research before committing to a broker goes a long way, and can increase an investor’s odds of success in the competitive forex market.

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