How to choose the best forex broker

A large and ever-growing number of forex brokers are available to traders, and many of them seem to offer a similar service, so how exactly will you know how to choose the right forex broker for you?

Get active

It is important that forex traders actively seek out the best forex broker for their needs. There are plenty of brokers advertising to entice new customers, and as soon as you start researching forex trading online, you may well find your online news feeds and social media streams overflowing with them. All advertisements, however, are going to make the broker sound amazing, as this is what ad copy is meant to do. It is vital that traders actively research brokers to find the best fit for their needs and requirements.

You can benefit from having an idea of the sort of features that you are looking for in a new forex broker. You may have a trading platform that you prefer, an exotic forex pair that you like to trade or specific ideas regarding the amount of leverage that you need your broker to offer. The clearer the picture that you have of what you seek, the more likely that you are to find it. There are a few factors that all traders should look at, however, when researching forex brokers.

How is the broker regulated?

In the UK, the Financial Conduct Authority (FCA) regulates and oversees financial companies, so any reputable UK forex broker will be under FCA regulation. In Australia, the Australian Securities and Investments Commission (ASIC) regulates Australian brokers. Most forex brokers will state clearly on their websites how and where they undergo regulation, with many monitored across several jurisdictions and by different financial regulatory bodies because they have offices in more than one country.

Regulation does not absolutely guarantee to protect your funds, but it is an essential first step for checking that a broker is legitimate. You should still look at other practices that the broker uses to ensure that your funds are safe and secure. Reputable brokers tend to offer extra deposit insurance and usually keep client funds in separate accounts in approved, top-tier banks. There are no guarantees in forex trading, so it is vital to at least pick a broker who takes diligent care of your money and keeps your accounts secure.

Which account offerings and features does the broker provide?

Many forex brokers offer different types of accounts to suit various levels of experience and funding. Typically, a forex broker will offer standard, mini and micro accounts, with the initial deposit required being different for each one. It is possible for new traders with limited capital to open a micro account with an initial deposit of around £100 or less. This might be a major consideration for you, and you will also want to ensure that your broker has all the features and benefits that you might need as you grow and become more successful as a forex trader.

Most new traders will also benefit from a demo account, which allows you to practice trading risk-free with virtual money. More experienced traders can also do well using a demo account as they adapt to a new broker with different trading platforms, layouts or features. Some brokers allow you to use a demo account indefinitely, while others restrict you to 21 or 30 days, so check that the terms meet your needs.

Another account feature that you will want to look at is leverage. Most forex brokers offer very generous amounts of leverage, and smart traders tend to avoid using maximum leverage, as it allows for much greater losses in relation to the actual capital that they have available. Nevertheless, you will want to know which leverage your broker offers and the terms attached to it.

Another account-related area to explore is the ease and speed with which you will be able to deposit and withdraw money. Most brokers accept a wide range of deposit and withdrawal methods, but they may charge for certain methods, and the time that it takes to process a deposit or withdrawal is also a key point to consider.

Which commissions and fees will you face?

How much is trading with this broker going to cost you? Examine the fees and commissions charged and be wary of websites that promise “no commissions.” Brokers take their cut from somewhere, and in forex, if they do not take commissions, then they generally take it from the spreads. There is nothing wrong with this; it is simply important to be aware that a no-commission broker will have wider spreads. Take this into account when looking at the overall cost of using a specific broker.

You should also check for any hidden fees. Is there an admin fee or an inactivity fee? Is there a withdrawal fee? The best forex brokers will lay out their fees and charges clearly on their websites. Take a close look at this before signing up.

Which currency pairs are on offer?

Most forex brokers will have a range of currency pairs available, including all the major pairs plus some minor and exotic pairs. There is a lot of variation in the actual number of currency pairs offered by different brokers, and some have only limited numbers of exotic pairs. For many traders, this is irrelevant, but if you plan to experiment with different currencies, then ensure that they are on offer.

Which trading platforms are available?

If you usually trade with the popular MT4 platform, for example, then you may want to stick with that. While many brokers offer it, some only offer their own trading platforms, often based on their own software and customised to meet their customers’ specific needs.

One last tip

While looking closely at broker websites is a vital part of your research, be aware that all websites are full of sales copy aimed at enticing new customers. Make sure to read several independent broker reviews for every broker whom you are considering.