What Is a Forex Broker?
A Forex broker is a financial firm that provides traders with access to the foreign exchange (Forex) market through a trading platform. By opening a trading account, retail traders can buy and sell currency pairs, aiming to profit from fluctuations in exchange rates.
Dealing Desk vs. Non-Dealing Desk Brokers
Based on the model of order execution, there are two main categories of Forex brokers.
Dealing Desk (DD) Brokers:
Dealing Desk brokers, also known as market makers, create an internal market for their clients instead of directly connecting them to the global Forex market. This often leads to slower execution speeds, re-quotes, and potential conflicts of interest. As a result, DD brokers are generally not ideal for high-frequency strategies like intraday trading or scalping.
Non-Dealing Desk (NDD) Brokers:
Non-Dealing Desk brokers offer direct access to the interbank market, providing faster execution and better pricing. NDD brokers operate without intermediating trading positions and typically fall into two main categories:
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ECN (Electronic Communication Network): ECN brokers connect retail traders directly with a network of major liquidity providers, offering deep liquidity and tight spreads. They charge a small commission for access and are favored for their transparency.
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STP (Straight-Through Processing): STP brokers route client orders directly to liquidity providers without human intervention. This ensures fast execution and competitive pricing, making them suitable for both manual and automated trading.
Compare Foreign Exchange Brokers
Choosing the right broker depends on your trading style, strategy, and level of experience.
Table: Comparing Forex brokers
| ECN/STP BROKER | CORPORATE INFO | TRADING TERMS | ACCOUNTS | INFORMATION |
ICMARKETS □ EXECUTION MODEL: CFDs
Not for European and Brazilian traders. |
□ Company Foundation: 2007
□ Licensed: FSA (Seychelles) □ Segregated Bank Accounts: Yes □ US Clients: No □ Islamic Accounts: Yes |
□ Spread EURUSD: 0.0 Pip
□ Commissions: $7 / full traded lot
|
□ Minimum Account: $200 □ Promotion:
|
|
ROBOFOREX □ EXECUTION MODEL: STP/ECN
|
□ Company Foundation: 2009
□ Licensed: FSC, license No. 000138/7 □ Segregated Bank Accounts: Yes □ US Clients: No □ Islamic Accounts: Yes |
□ Spread EURUSD: 1.3 Pip
□ Commissions: No
|
□ Minimum Account: $10 □ Promotion:
|
|
FXOPEN
|
□ Company Foundation: 2005
□ Licensed: FCA UK and FSP (NZ) □ Segregated Bank Accounts: Yes □ US Clients: No □ Islamic Accounts: Yes |
□ Spread EURUSD: 0.2 Pip
□ Commissions: $5 / full traded lot
|
□ Minimum Account: $10□ Promotion:
|
|
Crucial Issues When Opening a Forex Trading Account
The most important consideration when opening a Forex trading account is ensuring the safety of your funds.
Funds Safety
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Reliable brokers are headquartered in reputable jurisdictions (not offshore) and have been operating for more than two years.
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Regulation by a trusted authority, such as the FCA UK, significantly enhances the safety of client funds.
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Segregation of client funds from the broker’s own accounts is mandatory and a critical safeguard.
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A client compensation scheme in case of broker insolvency is an important factor to consider.
Trading Fees
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Trading spreads on EUR/USD should ideally be less than 1.2 pips without additional trading commissions.
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Overnight (swap) rates should be competitive, particularly for position traders holding trades long-term.
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Be aware of brokers charging withdrawal fees or maintenance (inactivity) fees.
Trading Options
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Demo accounts and micro-lot accounts are especially useful for Forex beginners.
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A wide variety of funding methods is preferable, including credit/debit cards, e-wallets, and cryptocurrencies.
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The available platforms should at minimum include the industry-standard MetaTrader 4 (MT4) platform.
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A broad Forex asset index adds value by allowing traders to diversify.
» Read about the innovative Forex Rating Formula v.4.0
How to Choose Forex Brokers -All Key Parameters
Selecting the right Forex broker is crucial. Every trader should consider five key factors before opening a trading account:
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Suitability of account types
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Cost of trading
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Margin policy and rollover (swap) rates
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Execution efficiency
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Safety of funds and compensation in case of insolvency
Each of these factors can be further broken down into several sub-factors.
(1) The Basics of a Forex Trading Account
1.1 What is the minimum deposit required to open an account?
Typically, the minimum deposit for a basic trading account ranges from $10 to $250. ECN accounts usually require a higher initial deposit, commonly between $500 and $2,000.
1.2 What deposit and withdrawal methods are available?
All brokers support bank wire transfers and credit cards. Many also accept e-wallets such as PayPal, Skrill, Neteller, and WebMoney. Confirm that your broker allows withdrawals via the same method used for deposits to ensure hassle-free fund access.
1.3 What is the minimum lot size?
Understand the minimum lot sizes offered. Beginners should look for brokers offering micro-lot accounts to manage risk effectively.
|
LEVEL OF TRADING EXPERIENCE |
LOT |
NUMBER OF UNITS |
|---|---|---|
|
Micro |
1,000 |
|
Mini |
10,000 |
|
Standard |
100,000 |
1.4 Is there any interest earned on unused account funds?
The vast majority of Forex brokers—about 99%—do not pay interest on unused capital in trading accounts.
1.5 Is a Demo Account available?
Any reputable broker must offer a Demo Account. Using a demo before opening a live trading account is essential for every Forex trader, as it provides a risk-free environment to practice trading and understand the platform.
1.6 Is there a Trading Rebate Plan available?
A Forex rebate plan is a cashback program linked to your trading account, paying you a rebate based on your trading volume. ECN brokers sometimes offer rebate plans. To participate, you usually need to find an Introducing Broker (IB) associated with the rebate program.
(2) Cost of Trading
2.1 What are the spreads on your preferred currency pairs – fixed or variable?
Generally, EUR/USD, USD/JPY, and GBP/USD offer the tightest spreads. Minor pairs tend to have wider spreads, making them less suitable for day trading. Some brokers offer fixed spreads, while others provide variable spreads.
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ECN/STP brokers usually offer variable spreads, which are considered more transparent and reliable.
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Dealing desk (market maker) brokers tend to offer fixed spreads.
Focus on the currency pairs you trade most, and consider using multiple brokers or accounts to access the best trading conditions.
2.2 Are there any trading commissions?
Commissions are typically charged only by ECN and STP brokers. Some ECN brokers offer zero spreads but make their profits solely through commissions. Market makers usually don’t charge commissions but compensate with wider spreads (EUR/USD minimum 1.6 pips), slower execution, and potential slippage.
2.3 Are there any other charges?
Additional fees may apply for withdrawals or account maintenance (inactive account fees).
(3) Margin / Rollover Rates
3.1 What are the margin requirements?
If you trade with leverage, it’s crucial to understand your broker’s margin requirements.
3.2 What is the rollover policy (swap rates)?
Swap rates matter especially for traders holding positions overnight (swing, position, carry, or long-term traders). You should find out:
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3.2.1 The specific swap rates for the currency pairs you trade
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3.2.2 Whether these rates are positive or negative
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3.2.3 How these swap rates compare to other brokers in the market
(4) Order Execution
4.1 What execution model does the broker use (ECN/STP or Market Maker)?
Professional traders typically prefer ECN/STP brokers because they provide direct access to liquidity providers.
4.2 Are there delays or price manipulation issues?
ECN brokers generally offer faster execution speeds and no price manipulation.
4.3 What trading platforms are available?
MetaTrader 4 is the industry standard, with many brokers also offering WebTrader platforms. Mobile apps for Android and iOS are now common.
4.4 Is automated trading supported?
Automated trading with Expert Advisors (EAs) is widely popular and should be supported.
4.5 Does the broker allow scalping?
Most ECN brokers allow scalping, while many market makers restrict or prohibit it.
4.6 Additional trading features
Features like free VPS hosting for algorithmic traders can enhance your trading experience. For example, learn how to create custom EAs with EA Builder.
(5) Funds Safety
5.1 Is the broker regulated?
Always choose brokers regulated by trusted authorities such as the FCA (UK) or ASIC (Australia).
5.2 Where is the broker headquartered?
It’s generally safer to choose brokers based in developed countries rather than offshore jurisdictions with looser regulations.
5.3 Compensation scheme
Check the compensation schemes offered in case of broker insolvency. For example, the FCA UK’s FSCS scheme covers up to £50,000 per client.
Rating Forex Brokers Using These Factors
To evaluate Forex brokers comprehensively, a mathematical “Rating Formula” was developed. This formula assesses brokers based on four key factors:
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Safety of Funds
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Trading Costs
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Trading Options
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Technological Efficiency
You can learn more about the formula’s development and versions here: » Forex Rating Formula v.4.0
■ Choosing Forex Brokers
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