Finding the Best Broker for You

A. Introduction

Selecting a broker can seem as difficult as learning to trade the forex itself. There are literally hundreds of forex brokers offering you their trading services and advice. Add to the mix the couple of hundred websites offering reviews of these same forex brokers and you have a situation whereby a “newbie” doesn’t know where to begin. Among the first tasks faced by a forex trader is finding a forex broker who is honest and competent so that they can concentrate on learning how to trade the forex and not whether their chosen broker is taking advantage of them.Remember. A forex trading broker is the custodian of your funds. The certainty of your gains, when they occur, will depend directly on the reliability and honesty of your broker, and its competence. Choosing the right broker is clearly the most important, albeit basic aspect of being a successful forex trader.

So how do you go about finding the best broker for your needs? To assist you in your quest we have collected some of the most important aspects of the broker experience that you should consider in determining whether the broker is right for you. In addition we have provided a quick checklist of questions that you should ponder when selecting a broker.

B. Important Characteristics to Consider when Selecting a Broker

1. Regulation and Security

Your number-one concern should be for the safety of your deposits. There are two things that you must know about. Is the firm regulated by government authorities? Second, does it implement state-of-the-art technologies for ensuring the safety of your funds and transactions from unauthorized access?

If you are using a US based broker, they should be registered with the National Futures Association (NFA) or Commodity Futures Trading Commission (CFTC). In Europe, each nation has its own regulatory body. The UK has the FSA, while Germany, Cyprus, and the Netherlands all have their own regulatory institutions. Usually, a broker will have a disclosure statement in the “About Us” section of the site which states whether it is a member of these organizations or not. Make sure that your broker is regulated. Never open an account with a firm that is not regulated by a recognized body, however tempting its offer may appear to be.

The other aspect of account safety is encryption, and the physical safety of your account data against theft. Technologies like SSL-encryption are standard in the business nowadays, and if you don’t see them implemented, it is time to depart for better, more serious brokers.

2. Dealing Desk or Non-Dealing Desk broker?

An ECN Broker (Electronic Communications Network) does not operate a dealing desk, but instead provides a marketplace where multiple market makers, banks and traders can enter competing bids and offers into the platform either inside or outside the spread, allowing traders to trade on narrow spreads.

3. Commissions and spreads

In general, the lower the spreads are the better. And they should be fixed. Paying more than 3-pips in the EURUSD pair is not a good idea, and there are some firms offering spreads as low as a single-pip in this most liquid pair. Also, Forex brokers charge no commissions, but that does not mean that you always get a better deal.

4. Initial deposit

The initial deposit requirement for your forex broker account should be low. But whether you benefit from depositing a really small amount depends on other factors such as minimum lot size, and leverage or margin requirements. A mini account that requires lot sizes of $10000 cannot be traded very effectively with a $50 initial deposit. Generally the smaller the initial deposit the better, because it is your risk capital, and you don’t want to risk too much in any single trade.

Many brokers offer different channels for funds deposits. Credit card and wire transfers, as well as deposits via NeTeller, or PayPal are accepted at many of the more competent firms. The size of the minimum deposit varies from firm to firm, but it is usually between $50 and $500 in a mini account. A standard account will require something around $1000-2000 in most cases.

5. Leverage and margin requirements

Keep leverage low. Try to choose a broker that offers leverage as low as possible at the first stage. But it is also possible to keep your leverage artificially lower than the minimum level offered by just trading with a portion of your account value. If you have $1,000 deposited with a broker that demands 100:1 minimum leverage, you can keep your leverage as low as 10:1 by just trading one mini ($10,000) lot with your account. On the upside, leverage is a matter of taste, so whether it is 400:1 or 200:1 is for you decide. High leverage can be dangerous at the beginning stages of your forex trading career. Please understand that increasing leverage increases risk.

6. Forex trading platform and software offer

The choice of a good forex trading platform depends on your trading style, subjective aspects such as the feel of the platform interface and the trading features offered by the platform. In general though, the platform should present a comfortable interface with a calm color selection and the more customization options available, the better. To test the software always experiment with a demo account to experience what the platform has to offer.

An important consideration is whether the firm offers support for MetaTrader. Some traders find this important because MT4 allows for the importation of third party indicators, expert advisors, and custom templates to help you trade. However the MetaTrader platform is complicated at first and requires practice before you get the hang of it.

7. Currency pairs offered

Although there are a large number of countries in the world, the fact of the matter is that a handful of majors are all that is required for the beginning trader. So the number of currencies available is not as important a point as it might appear.

8. Customer support

This is where you turn to when there’s a dispute or problem, so the friendlier and understanding they are, the better. Customer support should rarely be an issue when you’re trading with one of the best forex traders. Their systems run smoothly, and if there’s a technical error, they will be swift to recognize and mend it. But to make sure, it is always a good idea to make a call, even before you have any real intention of opening an account to see the quality of the customer support staff.

24-hour support can be very important. Remember that the forex market is active 24-hours a day. So your working hours may not coincide with that of the support staff, unless it is available throughout the day.

9. Beginner’s Support

Attitude to the beginner differs among brokers. The demands and needs of a beginning trader are not the same as those of an experienced trader. As a novice, it’s a good idea to seek a firm that makes educating beginners a major part of its mission and business strategy as a forex broker. Beginning traders are best suited to those firms that offer one on one training, webinars, and online educational materials. It is up to you decide about what you expect from your broker in this respect.

C. Sample Questions to Consider when Choosing a Broker

1. Reputation

What do other traders say about the broker?
What is their customer service like?

2. Customer Protection

Is the broker regulated? With what organizations?
Are client funds segregated to protect against bankruptcy?

3. Execution

Are they a Market Maker or ECN? Are orders manually or automatically executed?
How fast is their order execution?
What is the maximum trade size before you have to request a quote?
Are all clients trades offset?
How much slippage can be expected in normal and fast moving markets?

4. Spread

How tight is the spread?
Is it fixed or variable?

5. Margin

What is the margin requirement?
Does the margin requirement change for different currency pairs or days of the week?
At what point will the broker issue a margin call?
Is it the same for standard and mini accounts?

6. Commissions

Do they charge commissions?

7. Trading Platform

• How intuitive and functional is it to use?
• How reliable is it during fast moving markets and news announcements?
• How many different currency pairs can you trade?
• Does the platform facilitate automated trading?
• Does it allow you to use scalping strategies?
• Does it provide your favourite technical indicator?
• Does the broker offer premium services such as news feeds, market commentary, mobile trading etc?

8. Trading Account

• What is the minimum balance required to open an account?
• What is the minimum trade size?
• Do they offer micro and mini lots?
• Can you earn interest on the unused margin balance in your account?
• Is there a minimum margin requirement in order to earn rollover interest?
  

BROKER COMPARISION CHART

Selecting a broker can seem as difficult as learning to trade the forex itself. There are literally hundreds of forex brokers offering you their trading services and advice. Add to the mix the couple of hundred websites offering reviews of these same forex brokers and you have a situation whereby a “newbie” doesn’t know where to begin. Among the first tasks faced by a forex trader is finding a forex broker who is honest and competent so that they can concentrate on learning how to trade the forex and not whether their chosen broker is taking advantage of them.

The accompanying Forex Broker Comparison Chart is a compilation of a few of the brokers that Forexmentor members have identified as being professional, competent and trustworthy. The data was complied by visiting the website of each broker.

The objective of this comparison chart is to provide our members with current and accurate information to help them in their selection of a broker. We have attempted to provide a fair comparison of each broker by a few key characteristics that we consider to be important to beginning traders.

You can help us make this chart better. This chart is the first iteration of an ongoing process. Our intent is to continue to expand this chart to include more brokers and provide better information for our members. If you know of brokers that should be added to the chart, please let us know and we will attempt to incorporate them. If you have key features that you think should be included in the chart please forward to them and we will consider their adoption. And in the near future we plan to add a Review the Broker section to the chart so that you can submit your own opinion of the listed brokers. Finally if you have any additional ideas or which to become involved in developing this chart further please let us know. We will be happy to have you onboard.