How to choose a forex broker
Picking the right forex broker is a key factor of the success of your trading activity. Here is how to choose the right forex broker, step by step.
There are two ways to choose a forex broker : the lazy way and the thoughtful way.
The lazy way consists in reading just a few user reviews on a forum or look at the number of stars or ratings. But these ratings are no guarantee that a broker is the right one for you. It might not be suitable to your trading needs. Moreover, user reviews are not always genuine. Sad but true.
The thoughtful way of searching for a forex broker requires a bit more homework. You will have to do your own extensive research. User reviews and ratings should be considered, but they should play only a minor role in your research.
Here is how to research forex brokers, step by step, in a thoughtful and methodical way.
Clearly set what you expect from forex trading
Commencez par créer votre propre liste de fonctionnalités dont vous avez besoin.
Start by listing the functionalities and features your need. In order to help you build this list, here are a few questions you should ask yourself :
- Which pairs will I trade?
- Which spreads would I be satisfied with? (fixed, variable, pips)
- Would I agree to pay a commission to trade forex?
- How much am I ready to invest? (account size)
- How much leverage do I need?
- Which tools do I need?
- Do I need a specific trading platform? (e.g. Metatrader, Currenex)
- Am I going to do any scalping? Hedging?
- Do I require trailing stop orders?
- Do I want to be able to make one-click orders?
- Do I want to trade on my mobile? Automated alerts?
- Is it important to me whether a broker has a dealing desk or not?
- How important is it to me that a broker have a good reputation?
- How can I deposit money on my account?
- How much does it cost to withdraw or transfer money from my account?
Sort these questions by importance and then start your research.
Look for the brokers that answer your criteria
Use search engines and pay a visit to every broker's website. It's obvious, but it's always good starting point.
Visit broker websites very thoroughly
After filtering your list of brokers down to only a fistful of attractive suitors, pay a visit to their websites and read them thoroughly and carefully.
Don't just scan! The devil is in the details, so read carefully until you are sure you have understood perfectly the terms of service.
Pay particular attention to transparency. Look for information such as physical address of offices, phone numbers, client support, and details about any supervising regulatory bodies.
If a forex broker has no physical address listed on its site, that should immediately trigger an alarm in your mind. Phone, chat and email are irrelevant if there is no physical address.
It may seem anecdotal but the appearance and general impression of a broker's website can tell you a lot about its owner. It needn't be cutting edge web design, but it should nevertheless look and feel professional, and all links must work.
Signs with "Coming soon" or a blank page is plainly unacceptable. To a new visitor it always looks like a temporary message, but we know from experience that it will be "coming soon" for months on end.
A forex broker that accepts deposits from its clients simply cannot have a dodgy website.
Regulation is another important filter. It's always better to open an account with a broker that is under the watchful eye of a regulatory body.
Here is a list of the main ones :
- United States of America : NFA, CFTC
- United Kingdom : FSA UK
- Canada : BCSC, CIPF, OSC
- Australia : ASIC
- Switzerland : SFDF, ARIF, FINMA (since 2009, every Swiss forex broker must have a banking license)
- Sweden : FSA Sweden
- Denmark : FSA Denmark
- Spain : CNMV
- Japan : FFAJ, FSA Japon
- Hong Kong : SFC
- Dubai : DMCC, DGCX, DFSA, ESCA.
In other countries, other regulatory bodies are in charge of supervising trading and brokerage activities on the foreign exchange market.
Read forex broker reviews
We encourage you to read client reviews of their broker. As you will come to realise, there are as many good reviews as there are bad ones. This makes it difficult to make an informed choice, and it may seem impossible to find the truth.
Here's what you should do.
Follow a few simple rules of thumb
If a forex broker falls under the authority of a well respected regulatory body in its country, it means it's a serious broker that makes all efforts necessary to comply with the rules and requirements set imposed by the regulator.
If a broker has been in business for over 10 years, that means the broker does its job well and takes good care of its clients, otherwise it would have gone out of business long ago.
If a broker offers more than one product besides forex, like futures, stocks, options, commodities or CFDs, it's a sign that the broker is a large-size business with many responsibilities and many clients who trust it.
Separate good reviews from the bad
Be picky about the reviews you read and pay close attention to the person who wrote them. Is the author a beginner, a seasoned trader or a professional?
Just from reading the reviews, it's often possible to make a pretty accurate judgement of the trader's level of expertise. Give more weight to an expert trader's review, who knows what he's talking about.
Likewise, give less credit to reviews written by beginners, who often blame brokers for their own failings.
Beware of glowing reviews
Be wary of reviews that sound too good to be true, those that contain no criticism whatsoever.
These reviews are often written by the brokers themselves in order to boost their own rankings. But in spite of brokers' efforts to sound genuine, these reviews always have a slight promotional tone that makes them quite easy to spot.
If you can, go have a look at the personal history of a forum user. It often gives a good idea of the trustworthiness of that person's judgment.
Your aim to remain level-leaded, critical and objective.
Read the terms of service carefully
The information on brokers' websites are non-binding, so don't take them at face value.
Moreover, many forex brokers fail to keep their website up to date with the latest version of their terms of service.
For example, a broker's site may well indicate a 2 pip spread on the EUR/USD, even though that information is outdated. The current spread may well have gone up to 3 pips.
Read the terms of service carefully. It is the sole document that binds the broker. Do yourself a favour and don't tick "I have read the terms of service" before you have actually read them.
Conclusion : it's all about having the right mindset
All in all, choosing a forex broker is a bit like choosing a bank to whom you entrust your money with : reputation, transparency, flexibility and quality client support.
Read the next article : Six important criteria to consider when picking a forex broker