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How to Choose a Forex Broker

For any Forex trader, the inevitable question emerges: “Which Forex broker is the best?”  This guide will not answer this question specifically – the “best” broker will be different for traders with varying circumstances and requirements.  This guide WILL highlight the important questions you should ask when researching Forex brokers.  And RESEARCH you should!!

The Test Drive

Have you ever bought a car without taking it for a test drive, first?  We certainly hope not!  Likewise, it is recommended to establish a practice account with any broker you are considering to use as your primary broker.  Almost all brokers now offer practice accounts which let you get a feel for the broker before committing any money.  Avoid brokers altogether if they don’t offer practice accounts and aim for a broker that offers practice accounts without time restrictions.  Use your time on the practice account to make mistakes, call Customer Service about various issues and to get a general feel for how well the broker works for you.  A note of caution: With many brokers, the functionality will be slightly different on a practice account than it would be on a live account.  This is to be expected – WITHIN REASON.  If the practice account fails miserably, the live account is NOT likely to be far superior.

Legitimacy and Stability

Brokers should be evaluated just as one would evaluate a bank before setting up a large savings account – you are going to give the broker your money, right!?  Complete your due diligence when researching the legal legitimacy and financial stability of the broker. 

Questions to Ask:

  • Q: Are they registered with the necessary regulatory bodies (i.e. National Futures Association)? 
  • Q: How long have they been in business?
  • Q: Are they in good standing with the Better Business Bureau?
  • Q: Are the financials of the company solid?  Well-rated?

What are the Costs?

Brokers earn their keep through the fees traders pay – understand these fees!  A significant source of revenue (for your broker) and operating expense (for you – the trader) will be the spread – the price difference between the bid and ask prices.  Know how your broker handles spreads:

  • Q: Are spreads fixed or variable
  • Q: What is the average (and MAX) spread for each of the currency pairs of interest?
  • Q: What are the spreads during very illiquid times, or during times of high volatility?
  • Q: Are there commissions per trade, in addition to the spread?

Rollover – A trader must also determine how a broker handles rollover debits and credits.  Some brokers both debit and credit a trader’s account for  rollover, other brokers only debit your account (so you won’t earn credit for carry trades!).

  • Q: How is rollover handled?
  • Q: What interest rates are used to settle rollover?

Other fees/expenses – Make sure you understand ALL potential fees your broker could charge you!

  • Q: Are there any requirements to make a minimum number of traders in a given time period?
  • Q: Are there any “account maintenance” fees?  “Minimum balance” fees?
  • Q: Do I pay anything for the charting package/software?

Leverage

Another important factor will be the degree of leverage your broker offers.  Some brokers only offer a conservative amount of leverage – say between 2:1 and 10:1.  Other brokers will allow more aggressive trading, with leverage up to 400:1.

For this factor, there is no “best” or “better” option – it’s simply a matter of making sure your broker offers what you NEED.  If you choose to employ a trading strategy that requires 200:1 leverage – make sure your broker offers it!

Order Execution

Attempt to determine how well your chosen broker executes orders.  This is difficult to determine by asking a company representative questions – they will all say their order execution is superior.  Instead, get a feel for how quickly orders are processed.  What is the average “slippage” between the price you requested and the price you get filled on? 

Charting and Education

The charting services, as well as the educational services, your broker provides will aid in your mastery of the Forex market.  When choosing a broker, consider the functionality of the charting package they offer.  Sure, you do have the option to choose one broker for order execution and a separate stand-alone charting package, but most traders prefer to utilize a broker that has a superior charting package.  Likewise, most brokers offer a variety of educational tools to assist in a trader’s assessment of the Forex market.

Customer Service and Support

Like all businesses – brokers depend on their customers!  Make sure the broker you choose values you as much as they should!

  • Q: During what hours can I speak with a Customer Support Agent?
  • Q: How quickly are my calls answered, and my issues resolved?
  • Q: Do I have a dedicated point of contact, or am I always calling a 1-800 number?

Making the Call

In the end, a trader won’t know everything about a broker before making the ultimate commitment.  However, knowing the right questions to ask and doing the necessary research will increase your chances of choosing the broker that is best for you! We have also put together reviews of some of the most popular forex brokers out there to help make this decision easier for you.