Forex Broker - How To Choose Wisely?

When someone begins trading forex, their first question is: which Forex broker should I choose? It’s important to choose a loyal, stable and competent broker for whom the money that one puts, and later earns can be trusted.

There are also a lot of other questions – is this broker going to be suitable for my chosen strategy. E.g., scalping, day-trading, or medium-long term trading etc.

Today there are an increasingly wide range of brokers to choose from. Therefore, for traders, especially newcomers, it is indeed difficult to choose a broker for which they can trust their money with, and which is suitable for the trader.

In this post, we are going to discuss 9 criterias in which we can evaluate and choose a broker. It will be like common Forex broker review. We should say that it’s impossible to choose an ideal broker for everyone due to the huge variety of choice. Each trader must thoroughly analyze their trading needs, and then compare it with the brokers available. And finally choose the most suitable broker.

Criteria which one should pay attention to (in accordance of importance)

1. Reliability

What is the point of opening an account if your deposit won’t be safe, or even worse, will be stolen? Why waste your time examining charts, learning technical analysis, the basics of Forex, if the profit that you earn will not be given back due to scammers?

A Forex broker’s reliability is usually evaluated by: reputation, duration in a market, regulation (holding a license), responsibility, and risks insurance.

• Duration in the market – Pay attention to how long the broker has been in the business. The longer the broker has been in the market, the better.
• Reputation – the very first thing that must be done while choosing a broker is reading information about the broker. A lot of sad and funny things can be read about brokers on the Internet. In addition, pay attention to when and where you are reading the reviews – perhaps the information is being made up, or in the press where people say their opinion straight, when it’s not. It’s also good to read comments in foreign websites, to make a better conclusions.
• Regulation means that a broker is regulated by a governmental institution that supervises brokers, and guarantees trader safety. USA brokers are supervised and certified by two federal organizations: NFA (Natural Futures Association) and CFTC (Commodity Futures Trading Commission), in Great Britain it is called FSA (Financial Services Authority) and in Russia КРОУФР (Комиссия по Регулированию Отношений Участников Финансовых Рынков). Pay attention that not all Forex brokers are regulated, therefore, consider this before making a choice.

• Responsibility and risk insurance is a very important criteria that can save traders’ money from a broker becoming bankrupt. However, there are very few brokers who has insurance for customer accounts.

2. Ease of depositing and withdrawing money

It will be difficult to earn money in Forex if you cannot easily withdraw your profits. It is obligatory to analyze what are the different ways to deposit/withdraw money and how much it will costs (usually a percentage of the sum depending on the money deposited/withdrawn) and if it’s possible to deposit/withdraw directly from a credit card and electronic payments (Webmoney, Paypal, Payoneer).

Usually, a broker posts this information on his page and if you cannot find it, please ask your broker. It ‘s important for you to work out how much money you are going to spend to withdraw your profits.

Reputable brokers are always trying to ensure a quick and easy way to deposit and withdraw money. If you discovered unauthorized deposit / withdrawals – close the account immediately. Forex broker’s qualifications and honesty must be equal to banks. Usually, experienced traders test new brokers with small amounts of money before using huge sums of money.

3. A spread, commission sizes

A spread is defined as the price difference between where a trader may purchase or sell a currency pair, a commission is also often taken. A commission is usually taken when there is a small spread, and it is counted out of a transaction’s size.

An example: let’s say your strategy is scalping – a lot of transactions per day for several pips profit. It is obvious that a small spread, for example, 1 or 0,5 pips, if it is going to be big, for example, 3 pips, it will be more difficult to earn a profit, and the strategy won’t be profitable. However, when the spread is small, usually a small commission is added.

However, in medium or long-term strategies of several days or weeks, the spread size is not as important because there are less transactions occurring (about 5-10 transactions a month). If you are going to use this type of strategy, then you should choose a broker where there’s no commission but a bigger spread.

Furthermore – some brokers have a fixed spread, and others have a floating spread which changes in accordance to market activities (for example, a spread significantly increases when important news is being released).

4. Account Types

Each broker has several types of accounts. Here you have to think what your trading strategy is going to be. For example, if you wish to trade with robots, then cent accounts are necessary.

A demo account – each broker normally has a demo account, where a newcomer can learning trading with virtual money, or an experienced trader can test out his trading system.

A cent account – in which you trade real money, but in cents, for example, you deposit 100 USD and it shows 10.000 USD (ten thousand cents). Only these accounts are suitable Forex robots where a big deposit is necessary. It is notable that not all brokers have cent accounts.

Micro/Mini account – a deposit of a specific size is required.

Classic (Standard) account – dedicated to experienced traders, a deposit is usually several thousand USD.

ECN, NDD, Currenex accounts – ECN (Electronic Communications Network) and NDD (No Dealing Desk) dedicated to trading without intermediary intervention. Orders are sent directly to a market, in this way the higher speed and better stable quotes are reached. Such accounts are characterized by a small spread, however, a commission is taken. In addition, the required minimum deposit can be big. For example, a brokers such as Hotforex has a Currenex account – a minimum deposit of 500 USD is required.

PAMM accounts – dedicated to investments. You can invest using a PAMM trader, or you can open a PAMM account so that investors can invest into your trading. I would recommend InstaForex PAMM account.

Pro, VIP accounts – for trading with big sums of money from 10.000 USD.

5. Trading platform

A lot of Forex brokers are offering several platforms for traders. It can either be an interactive web terminals, or a platform which is created by the broker themselves (like Oanda ) and also the popular and probably best Forex platform Metatrader 4. Many trading systems use their own templates and indicators. And Forex robots are being created in accordance with Metatrader 4. Therefore, when choosing a broker, ask your broker if they have a Metatrader 4 trading terminal, otherwise the indicators are not going to work properly.

6. Choice of financial instruments

All brokers, have the basic currency pairs, however, some of them offer stocks, indexes and exotic currency pairs. For example, Oanda, offers many exotic currency pairs (e.g. Turkish lire, Norwegian krone, Chinese yuan). Furthermore, if you are going to trade gold, you should make sure that a broker has gold, because not all the brokers have this.

7. Leverage

The higher the leverage, the smaller a deposit is required. Not all the brokers have equal leverage, for example, Oanda has the highest leverage at 1:50, therefore, for some strategies with high leverage a small deposit is required. In essence, a lot of brokers are offering 1:100, 1:300, 1:500 or even 1:1000. Read more about leverage here.

8. Deposit size

Today a lot of brokers let’s one begin trading and with a small deposit (50, 100 USD or even 1 USD), however, the trader must read the terms and conditions. Of course, there are brokers where a deposit size has a huge meaning. For example, a minimum deposit of Interactive brokers is 10.000 USD. This is understandable because this broker is focusing on big traders and investors.

9. Support service

When there’s an unforeseen technical problem, for example, money has not been transferred to the bank account, or the order wasn’t closed due the broker’s fault, any respectable broker will have a support service with which traders can get in contact. Therefore, if the support service of a broker is only in English you should be able to speak in that language.

A few suggestions

The most important thing is not to put all your money with one broker.

Businesses have always been aware of the number 1 rule – “Don’t put all your eggs in one basket“. It is not good to keep all your money with one broker, (even if he is the best one) because you may lose your deposit if something happens to the broker. It has already happened before. For example- the broker Sovereign Financial Group (Switzerland) and Refco (USA) became bankrupt in a single day despite the fact that these brokers were large, had been well established in the market, and had a good reputation.

Therefore, the best way to divide your deposit is among several brokers, for example, divide it between 3 or 4 brokers. This way, it will reduce your risk of to losing your deposit, because the chances of 3 or 4 brokers will go bankrupt is highly unlikely.

Never bring a huge amount of money at once. First of all, bring a small amount and try a broker – make several transactions in accordance with various strategies. Try scalping, observe if a trading platform is struggling during news, try to withdraw some profit that you have earned, ask the broker’s support services some questions. If everything works well, you can then bring some more money, and if not you switch to another broker, you won’t need to transfer huge amounts of money.

One more suggestion for beginners – do not be tempted by brokers who advertise aggressively, and offer many introductory bonuses or offers. Usually, there offers and bonuses are used as a bait so that they can tempt a trader. And usually the broker doesn’t normally meet the client’s expectations because their aim is get as much money as possible Beware, and always check a broker’s reputation.

Do not try to open the account with reputable brokers (FXCM, CitiFX Pro, Dukascopy, Saxobank). For example, Ducascopy seems a very attractive broker, however, when trading with them you can face many difficulties, for example, huge commission fees and a higher deposit amount required at weekends (a maximum permitted drawdown 30%). Or, for example, Oanda has a very good reputation, however, hedging is not allowed (buying and selling the same currency pairs at the same time) or when you order a withdrawal you may have to wait for up to 10 days or more. Solid brokers are usually not very flexible and their terms and conditions are not always the best ones available, because they focus more on safety and other things, therefore, if your deposit is lower than 10.000 USD these brokers won’t be suitable for you.

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Conclusions

You should understand that it is impossible to choose a broker that suits everyone. All of them have their good and bad points, therefore, you should choose the one that suits you the best.

Readers usually ask which brokers I’m using. Please read more about my recommended brokers here. I can tell you that I have already tried a lot of brokers: Oanda, FXCM, FXOpen, Saxobank, , Ducascopy, FIBOGruop, FXDD, Admiral Markets, ThinkForex, etc. There was some problem with all of them. I am working with several trusted forex brokers at the given time and they all satisfy me.

My favorite broker is Roboforex – there were no problems when trading or withdrawing money. A very quick and easy registration, able to quickly withdraw money, their trading platform runs well and offers a wide variety of financial instruments. There a separate Binary Option platform, a good and attractive investment is CopyFX system, which has a lot of contests, seminars, etc.

Forex4you, Alpari – are good brokers too.

In addition, maybe you have your own criteria when choosing a broker? Or maybe some comments or complaints about other brokers – please share this, I think that this information is always interesting and necessary for all Forex traders.

I wish you success! Take care.