Security and Regulations
To protect your hard-earned money, trade only with forex brokers you can trust. When conducting your search, avoid unregulated brokers at all cost and investigate under which authority they are regulated. Make sure to confirm that their license is valid.
The different regulating authorities enforce rules on their affiliated forex brokers that regulate aspects such as the amount of leverage they may offer to their clients and which measures they should take to protect their client’s deposits and profits from trading. Make sure the broker you choose meets all of the forex broker regulations.
Forex Broker Types
Are you aware that there are different types of brokers? Not all platforms execute their clients’ trades in the same way. Functions like the spread, commissions, rollover fees, liquidity, re-quotes, slippage, reliability of execution, and many other factors, are influenced by the type of broker you use. The three main types of forex brokers are :
- Market Makers - these broker's deals don't take place in the interbank market, so they are able to set their own prices. With these brokers, its important to track the spreads.
- ECN or Electronic Communications Networks - these connect traders in the interbank system and create the link between buyers and sellers.
- STP or Straight Through Processing Brokers- these brokers don't have a dealing desk, and trade only within the interbank system. Prices are equal to interbank rates and smaller trades can be accomodated.
Each of these types pose advantages and disadvantages, and its important to first determine your trading type. Read more about the different forex broker types, using FXLeader's guide, before making your choice.
Trading platforms are also an important aspect to consider when choosing a broker. The most popular platforms are the Metatrader 4 or Metatrader 5 platforms and almost all brokers offer one or the other. However, if you want more options, there are plenty of brokers who offer their own customized trading platforms. Some of these platforms are confusing to a first time user but some are surprisingly good. For a thorough list see our new featured forex brokers list above and read about the different trading platforms.
Costs are very important to every trader and as a result, spreads must be as small as possible in order for a forex broker to be considered a good choice, especially to those who tend to trade short term signals. In addition, there are other fees, such as deposit/withdrawal fees, dormant account charges, etc. Pay attention to dormant account penalties as well. Make sure to check all types of fees before opening an account with any broker.
Another critical aspect to consider is a broker's customer support. A helpful customer support system can keep a small issue from turning into a big nightmare. Additional features to check include bonuses, rebates, promotions, online and in-person training and webinars. It's important to check which of these services appeal to you, depending on your trading methods and level, in order to find the broker that will fully fit your needs.
Trading style is another criteria that will determine whether a broker is right for you. For example, If you focus on using the scalping trading strategy and your broker does not support this strategy, you will not be able to successfully trade with them. Since each firm has their own style, we advise opening a demo account to test your strategy, and check for a good fit before choosing a broker to invest with.
Spread and Commission
A forex broker’s spread and commission structure is an extremely important consideration when doing a comparison.
First of all, a wider spread makes it more difficult to execute profitable trades because the price needs to cover a greater distance to your take profit. It also increases your risk of losing trades because the price is automatically closer to your stop loss.
Besides these trade hurdles, higher commissions, wider spreads, expensive rollover fees, and additional fees will eat away a substantial part of your forex trading profits in the long run. Make sure you do your homework on this topic properly and find out more about forex broker spreads and commissions.
Social Forex Brokers
For investors who don’t like to do all the forex trading and forex market analysis themselves, there is an exciting way to access this massive market (and a wide range of other markets) in a very efficient way.
With the help of social trading and copy trading brokers, the amazing concept of copying profitable traders is made incredibly simple and easy on their platforms.
There is another side to social trading - becoming a leader yourself. If you have what it takes to trade the markets responsibly and profitably, you can earn money on their platforms as a ‘popular investor’. Your trades will be copied to the investors’ accounts who choose to copy you. The social forex broker will then pay you a commission according to the number of traders copying you, and/or the amount of money you manage in this way. Here is a great way to learn more about social forex brokers.
Tips from our Expert Trader
How to evaluate your broker’s performance
I personally trade with a couple of different brokers because of fund management requirements. A few years ago, I tried to place two market orders with one of these brokers, on the EUR/JPY currency pair, which weren’t executed. When I contacted my personal account manager, he said he would have the issue investigated and get back to me.
The trades which weren’t executed would have made a profit and the broker calculated how much the profit would have been by looking at where my take profit order was supposed to be. The broker credited my trading account with this amount and said they were glad to perform a once-off compensation for the ‘loss of potential profits’. It was a once-off deal because they do not usually compensate for the loss of potential gains when it comes to order execution errors.
I was utterly amazed at the generosity of this broker, as the authorized manager went out of his way to do more than which was necessary to keep me happy. I didn’t expect from them to do the restitution, but they were happy to do it anyway. That’s amazing!
How to evaluate your broker's customer service
Customer service is really important when you encounter serious problems with, for example, the platform you’re trading on. When you’re in such a situation, the speed at which the technical team solves the issue can determine whether you lose or make money. There are a few ways you can test the reliability of your broker with regards to customer service.
For example, I had a charting issue with the same outstanding forex broker that was so generous to reimburse me for their execution errors. The issue was that the charts didn’t load when I launched the platform. Now to me, this is a massive problem. I don’t know about you, but I can’t trade without seeing charts in front of me.
Anyway, this was a really difficult problem for them to solve, but they got it right in the end. Problems like this can easily rob you of a profitable day’s trading. When things like this happen, the degree of support you get from your broker is absolutely critical.
How to gauge your broker’s responsiveness
There are many other ways to evaluate your broker’s responsiveness, but taking some of these steps is a good place to start:
1. Ask them for help with a few things, like for example, retrieving a lost password and username. Then take note of how long it takes them to assist you and sort out the problem.
2. First, deposit a small amount of money into your trading account. Request a withdrawal after a few days to see whether it is done as fast as the broker promised to do it. This will also give you the assurance that the forex broker actually allows clients to withdraw their funds (scammers often steal their client’s deposits).
3. Ask your broker to assist you with tasks like importing custom indicators, setting up charts, or running an account statement. Contact them via email and via their online ‘live chat’ function if they have such a service. If you see that you need to wait very long for assistance or if the representative doesn’t have the ability to help you properly, you definitely need to take note of these weaknesses.
4. Pay attention to how effective the broker’s communication is with its clients. For example, if they regularly notify their clients of important events or changes on their forex trading platforms. These events can include irregular trading hours due to holidays or changes in margin requirements, for example.
How to avoid choosing the wrong forex broker