How to Choose Forex Brokers
Choosing the right Forex broker is extremely important.
There are five key factors that every trader should know before opening a Forex trading account:
(1) Suitability of trading account types
(2) Cost of Trading
(3) Margin Policy & Rollover Rates
(4) Execution Efficiency
(5) Safety of Trading Funds & Compensation in case of insolvency
In the following analysis, each of the above 5 factors is divided into several sub-factors.
(1) The Basics of a Forex Trading Account
1.1 What is the minimum deposit required to open an account?
Usually, the minimum deposit for opening a simple trading account is from $10 to $250. ECN trading accounts require a higher initial deposit, usually $500 to $2,000.
1.2 What are the available Deposit / Withdrawal Methods?
All brokers support Bank Wire and Credit Cards. Some brokers support also internet wallets such as Paypal, Skrill, Neteller, and WebMoney. Make sure that your broker allows you to withdraw all your profits via the same method as you have deposited funds.
1.3 What is the minimum lot size?
Get informed about the available lot sizes. Forex beginners should select a mini lot size account.
|LEVEL OF EXPERIENCE||LOT||NUMBER OF UNITS|
|ADVANCED / PRO TRADER||Standard||100,000|
1.4 Is there any interest earned for the unused account funds?
99% of all Forex brokers don't offer interest on your unused capital.
1.5 Is there a Demo Account available?
Every broker that respects his clients must offer a Demo Account. Using a Demo before opening a Real Trading Account is important for every Forex trader. A Demo account offers a trading experience for free.
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 cash rebate based on your trading volumes. ECN brokers sometimes offer a trading rebate plan. To join a rebate plan, you must find an IB.
Forex rebate plans: » https://forex-rebates.com/
(2) Cost of Trading
2.1 What is the spread on your Favor Currency pairs –is it Fixed or Variable?
In general, EUR/USD, USDJPY, and GBP/USD offer the narrowest spreads for trading. On the other hand, minors, are traded on extremely high spreads and that makes them unsuitable for day-trading. Another parameter concerns the type of trading spread. Some Forex brokers offer trading accounts with fixed spreads, others with variable spreads.
- ECN/STP Brokers offer variable spreads (a more reliable choice of brokerage)
- Dealing-Desks offer foxed spreads
Focus on the currency pairs that you will probably trade most and find which brokers offer the best trading conditions. You can use also multiple trading accounts and take advantage of more brokerage choices at the same time.
2.2 Are there any Trading Commissions involved?
Usually, trading commissions are charged only by ECN and STP brokers. Some ECN Brokers even offer zero (0) spreads and make profits only by charging trading commissions. On the other hand, Market Makers don’t charge commissions, but they charge very wide spreads (EUR/USD at 1.6 minimum) while the execution is usually slow and there is slippage.
2.3 Are there any other charges?
Other charges may be incurred on withdrawals (fees) or on account maintenance (not-active fees).
(3) Margin / Rollover Rates
3.1 What is the Margin Requirement?
If you want to trade on leverage, make sure you know about the margin requirements.
3.2 What is the Rollover Policy (SWAP Rates)?
This is very important for those traders maintaining their positions overnight (swing traders, position traders, carry traders, long-term traders)
At this point, you must answer questions concerning:
3.2.1 What are the particular SWAP rates for the particular currency pairs that you are interested in?
3.2.2 Are these SWAP rates negative or positive?
3.2.2 Are these SWAP rates better or worst than the rest of the market?
(4) Order Execution Efficiency
4.1 What is the Forex Broker execution model (ECN, STP, or Market Maker)?
In general professional traders open accounts only with ECN/STP brokers which offer direct access to key liquidity providers.
4.2 Are there any delays in execution/price manipulation?
ECN brokers perform better in terms of execution speed without any price manipulation.
4.3 Which Trading Platforms are Available?
MetaTrader4 is the Forex industry’s standard. Usually, most brokers offer a Web-Trader too. In addition, mobile trading is offered by all brokers nowadays (apps for Android, iPhone, and iPad).
4.4 Is Automated Trading an Option?
Automated Fx trading using Expert Advisors has become considerably popular nowadays.
4.4 Does that Forex broker allows Scalping?
In general, most ECN brokers are fully allowing scalping and most Market Makers don’t.
4.5 Additional Trading Features
There are many additional features making trading easier. For example, a free VPS hosting for algorithmic traders.
Learn how to create fully-customized automated systems: » EA Builder Review
(5) Funds Safety
5.1 Is a Forex Broker Regulated?
It is absolutely important to choose only among well-regulated Forex Brokers. Trustable authorities included FCA UK, ASIC Australia, etc.
5.2 Where is the Headquarters Base?
Generally speaking, it is better to choose among Forex Brokers that are situated in developing countries and not those who are situated in offshore countries where the legislative framework is more flexible in favor of a misbehaving corporation.
5.3 Compensation Scheme
Check always what you will get as compensation in case of your broker's insolvency. For example, the FCA UK (FSCS scheme) offers 50,000 GBP.
Rating Forex Brokers using all the Above Factors
To define the quality of a Forex Broker using multiple factors a mathematical model was formed “Rating Formula”. This formula uses 4 factors to rate brokerage services:
(1) Safety of Funds | (2) Trading Cost | (3) Trading Options | (4) Technological Efficiency
Here is the version history of the Rating Brokers Formula: » Rating Forex Brokers Formula –V.4.0.
■ Choosing Forex Brokers