A simple online search for the words forex and broker will generate thousands of results, from the most popular, to the most unknown names in the retail forex market industry. This is why choosing a forex broker when you first start trading can be downright overwhelming.
The broker you chose can have a tremendous impact on your overall trading activity and, of course, on your wallet, so ensuring you find the perfect match is paramount. But choosing a forex brokers means much more than just going with one of the top three search results, because what works for the majority of traders may not work for your trading style.
If you don’t know where to start, or what to look for, when deciding on a broker partner, the tips below are meant to make your search easier and ensure you make the best possible decision.
Legitimacy and security
What makes currency trading so appealing to many is precisely the fact that it is a decentralized market. This means that traders deal with each other directly, meaning it allows for more transparency and lower transactional costs, given the fact that there is no actual intermediary authority between the traders. But one disadvantage of operating on a decentralized market is the fact that is lacks governing authorities, which makes it an ideal place for illegalities.
The forex market is, for the most part, decentralized, but precisely to ensure the safety of traders, a number of regulatory agencies are trying to provide a legal framework. Every reputable forex broker needs to be regulated by one or more of these agencies, to prove that they are trustworthy and credible partners.
This is why, when choosing a forex broker, you need to ensure they are a member of one or more of the regulatory bodies out there. This should not be difficult to verify, given the fact that it is mandatory for brokers to mention it on their website. Look for brokers that have been regulated by one or more of the most important regulatory bodies and never trust your funds with a broker that is not a member of any regulatory agency.
Trading platform
Most of the time you will be trading, you will have to interact with the trading platform that the broker uses. This is why you need to choose a broker that provides a platform you find comfortable and easy to use.MetaTrader 4 and Metatrader 5 are amongst the most common platforms, but they are not the only option out there.
What you need to keep in mind, when choosing a trading platform, is user experience, stability, and features. Some platforms offer direct access to news, technical tools, and other trading-essential features, while others are more simplistic and only provide the most basic characteristics.
Quite a lot of FX brokers provide Metatrader 5, which is amongst the most-used trading platforms, not only for currency traders but for CFD, crypto and other types of trading. The reason why Metatrader 5 is so popular is that it provides, besides the basic features, many useful tools, such as a Depth of Market tool, market listing, product categorization, an economic calendar, and an embedded chat to discuss with other traders.
But just because MetaTrader 5 is the most popular platform, it does not mean it is necessarily the best one for you. Open a demo account, test it out and see if you are content, or if you want to test other platforms as well.
Fees and costs
Each forex broker as its own variety of account types, all coming with different costs and fees. Some brokers work on commissions, while others work with spreads, meaning that, for every trade you enter, you will have to pay a fee.
Brokers that use commissions will usually charge a fixed percentage of your position size, but that is usually more common with CFD brokers.
The majority of forex brokers, however, make their money through spreads. To put it simply, the spread is the difference between the bid price and the asking price of a said pair.
One mistake that many traders make is looking for brokers that work with small fees, but are not exactly the most trustworthy. If you want to make sure your funds don’t have to suffer, it is better to give up on a small percentage of your earnings and work with a reputable, regulated broker that values transparency and protects its traders.
Last, but not least, pay attention to the initial deposit that the broker asks for, in order to open an account. Most accounts can be opened with as little as $50, which is another reason why the currency market is so popular.
Deposit and withdrawal options
A reputable broker will facilitate the deposit and withdrawal operations for its traders and should have no reason to do otherwise. If you have trouble performing any of these actions, you may want to check the reliability of your broker again.
Forex brokers have no use of your funds and should only keep them to facilitate the trading process for you, so there is no reason why you should not have access to your funds at any time.
Look for withdrawal and deposit costs, as some brokers may also charge small fees for these actions. Usually, you should be able to fund your account via credit card, wire transfers, a PayPal account, or cheques. Withdrawal usually happens via cheque or wire transfer.
Customer service and support
Last, but not least, make sure your broker is there for you at any time. The market is open 24 hours a day, 5 days a week, which means that you may need support at any given moment.
Look for a broker that provides, besides auto-assistance, often in the form of chatbots, a phone number where you can get in contact with a real customer service representative. Sometimes a human approach on an annoying issue can be much more helpful, than having to go through endless conversations with an AI.
Want to test a broker’s customer service? Look for their number and give them a call. Ask about their platform, account types, or any other information that you may need. A 5-minute call can sometimes spare you days of unnecessary frustration.