5 Tips On Choosing Your Forex Broker

The Forex market is incredibly competitive, perhaps more than any other financial market there is. This is because of the global nature of the industry, which attracts millions of traders from all over the world. As a result, only a minority succeed and make money. In fact, reports by ESMA revealed that only about 25% of traders will make money trading the Forex market.

Much of the difference in success can be attributed to a trader’s choice of an FX broker. In the aforementioned report by ESMA, some brokers had as much as a 36% win-loss ratio and others as little as 10%. This demonstrates the influence of a good broker to a trader’s success, and why you need to be very careful when choosing one yourself.

To help you with this, here are the 5 tips you should always keep in mind.

Regulation and compliance 

Feeling the pinch of the financial crisis of 2008, hundreds of clients from Universal Brokerage Services tried to withdraw their funds but were unable to. These clients sued the company in the summer of 2009, and only then did they realize that they had been swindled.

In total, over $190 million had been lost and authorities were only able to recover $21.7 million; only $11.7 million was returned to investors. On January 16, 2020, a US District Judge commended the CFTC for doing ‘an outstanding job’.

There are numerous other cases similar to this one where millions and even billions were lost. More common, though, is where a scam broker gets away with hundreds of thousands from unsuspecting retail traders. In all of these cases, the problem boils down to a lack of regulation by the brokers involved and the failure of its clients to realize that. This is why it is always advised to only trade using a licensed and regulated Forex broker.

Not only does the broker need to be regulated, but it is also preferred that the regulator be a reputable one. Not all regulators are capable of keeping up with the companies they oversee either because of being overwhelmed or through the lack of ‘teeth’. Regulators like the FCA, ASIC, and CFTC are well regarded because of the strict financial regulations in the countries they operate.

Meanwhile, regulators in countries such as Cyprus, Mauritius, Seychelles, etc. have lax regulations intended to promote investments from the very brokers they regulate. Therefore, one does not need to see the potential risks of governing the company you depend on for business.

As you can see, there are a lot of aspects regarding regulation, and you need to take them all into account when choosing a Forex broker. After all, the final decision you make could mean the difference between you making money or losing all of it.

Number of currency pairs available

Forex trading involves trading currency pairs, so naturally, the more there are at your disposal, the better off you are. Forex pairs are categorized either as major, minor or exotic. Most FX brokers will provide all major pairs and some minor pairs, but the best brokers have over 50 pairs ranging across all categories.

Needless to say, you should always choose the broker with the most currency pairs. The reason for this goes beyond the presence of the pairs. Having multiple currency pairs to choose from gives you the ability to hedge against risk and even increase your profits.

For instance, one may choose to capitalize on global events by trading exotic pairs from the countries involved. Imagine shorting the CNY against the USD following an increase in tariffs by the US against China. Unfortunately, the CNY/USD pair is considered exotic and many brokers may not offer it.

Besides, exotic pairs have a higher return rate compared to major pairs. A winning trade on, say, the EUR/USD pair will have lower returns compared to that from the USD/NOK pair.

Considering all the above, always give priority to the broker with a larger number of currency pairs. In addition, look at other products available for trade in the form of CFDs. Assets such as stocks, futures, commodities, cryptocurrencies, indices, etc. are an additional avenue for investment. These are also great for hedging in the markets and should give a broker the advantage.

Trading platform(s)

You would think that the Forex market, with such a huge daily transaction volume, would have many trading platforms. Instead, there are only about 2 or 3 prominent trading platforms among retail traders and tens of proprietary software for individual brokers.

When you need to choose between a number of brokers, you should seriously consider which trading platform(s) the broker provides.

Trading the markets requires a lot of time, which means spending hours staring at a screen. To be effective at your market analysis needs you to be comfortable, and that is why the choice of trading platform matters a lot.

Some people prefer the simplicity of MetaTrader and others the robust features of cTrader. Both are excellent trading platforms, but the choice comes down to what one is more comfortable with.

Aside from comfort, you should always avoid anything that will trip you up especially considering that one wrong click can cost you money. Learning to use a new trading platform takes a lot of time, so you should try to stick with what you know and avoid any extra pressure.

Trading costs

Most traders don’t realize how costly it is to trade the markets until they notice that a chunk of profits has been deducted as commissions or spreads. Every broker sets their own rate and you need to know exactly how much you will be paying in fees.

Day traders prefer getting charged in spreads because the spreads are variable depending on the market volatility. When volatility is low, the spread is also low and thus charges are less. On the other hand, long-term traders prefer paying in commissions because the rate is predictable. Some prefer a combination of the two.

The idea is to choose the payment structure you’re most comfortable with and reduce costs as much as possible. Also, try to avoid any broker that does not explicitly indicate the cost of trading as this is probably a scammer.

Account features

This is the part where a broker gets to set itself apart from its peers by offering unique account features and services. Some of these features include the amount of leverage, copy trading, customer care, funding methods, etc. Clearly, these are a lot of aspects to look at, but you simply need to prioritize.

For example, if you don’t feel confident in your trading ability, then social trading should be your highest priority. Meanwhile, if you have limited capital, then leverage becomes crucial to your decision.

When you get to this part of the decision-making process, it is important to strike a balance across all other considerations as well. One broker may have very high leverage but also high trading costs. Account features give you a chance to look at the bigger picture overall rather than specific aspects.

That being said, one of the most important account features is customer service. Most people ignore this until they need help and realize how reluctant the broker is to respond. Emergencies are likely to occur, and you need to have a quick way to reach the broker and receive a response.