There are a large variety of Forex brokers available to the Forex trader of today. Forex trading is fast evolving with new FX brokers emerging all the time and competition evolving at a rapid pace. The best Forex broker for one user may not be the best broker for another. It depends on your trading style, what you want to trade and your support needs. Some aspects are general and apply to all brokers, whilst some are more personal depending on your individual trading style and needs.
Forex broker regulation is very important when choosing a broker since it is a matter of how safe your investment is. The best forex brokers are generally regulated in many different countries by different regulators. Read this article for a definition of the different European Financial Regulators
In this section we review various forex brokers based on usability, platforms, regulation, customer support and many other criteria.
Top 10 Tips for Picking an FX Broker
Here we look at ten different factors that we believe are of significant importance when you consider choosing a Forex Broker. The significance of each will differ depending on your needs, which in turn will depend on your trading style, your knowledge level and your type of trading.
Regulation and how safe is my money?
You wouldn’t put a large amount of your savings in a bank account if you did not know that the bank was secure and regulated would you? So similarly why would you deposit with an FX Broker unless you were confident your funds and profits are safe?
In the UK, this would mean looking for a broker that is regulated by the financial conduct authority (FCA). In the USA, the equivalent would be a broker regulated by the National Futures Association (NFA) and/or the Commodity Futures Trading Commission (CFTC).
Opening an account with a broker regulated by any of the of the above should allow for protection if you as a depositor/ trader have an issuer or grievance with the broker.
Spreads and/ or Commission
Brokers do not provide their services for nothing, so charge either commission per trade or more likely by the spread between the bid and offer prices. The wider the spread, effectively the more the trader has to pay to get into and out of each trade. So the narrower the spread, affectively the better off for the trader. Sometimes brokers offer fixed spreads, but often the spread will be variable depending on the volatility of the market.
Withdrawals and deposits
Most FX Brokers today offer very low requirements to open an account (from as little as £50). Brokers have differing policies with regard to depositing, funding and withdrawals. Are you able to fund the account from a bank account via wire transfer, via credit card, via PayPal? When withdrawing is this done via wire transfer, back to your bank account or credit card? Are there any withdrawal fees? Initial deposit requirements.
Rollover interest (credit/ debit)
Some brokers charge a debit (or give a credit) for daily interest. This would be a consideration for any traders thinking of holding open positions over night.
Margin and Leverage
Many FX Trading accounts are based on the concept of margin and leverage. Leverage is basically the ability to increase the possible return on an investment or trade. A margin account allows the trader to use leverage by trading larger amounts than deposited in their account. This is because only the potential short term losses on the accounts need to be covered, not the full amount of the underlying asset. How much leverage any FX Broker offers and the margin requirements may be a consideration when opening an account with a particular forex broker.
Types of forex accounts
There are different types of FX trading accounts which include more traditional cash exchange accounts, spread betting type accounts or CFDs (Contracts for Difference). The choice of which account to open will depend on your very specific needs and potentially even depend on your tax liabilities.
What markets can you trade?
Most FX brokers offer trading in the major currency pairs, including EURUSD, USDJPY, GBPUSD etc. Most also offer currency cross rates, ability to trade a large selection of currency pairs against each other.
In addition, many brokers offer the opportunity to trade other financial markets and assets. These would include equity indices, government bond markets and commodities (such as oil, gold, copper).
Practically all brokers offer a trading platform, whereby the trader can access the various markets available to trade. Some brokers provide their own developed trading platforms, whilst others suggest downloading free platforms offered by third-party providers. There are many different factors to consider when looking at differing trading platforms including; ease of use, accessibility, trading tools on offer, charting packages, mobile/ tablet access etc.
Many markets are now open 24 hours a day, five days during the week. So a strong customer support service would be open at all times during this time. Also, the speed of access to a live individual rather than an automated service should certainly be considered. Inevitably, when calling customer service it is usually with an issue, which as a trader you will likely want resolved as soon as possible.
Demo account available?
Most, but not all, Forex Brokers offer demo trading accounts to practice on. A demo account allows you to test the trading platform and evaluate some of the above-mentioned factors.