How to Choose a Forex Brokerage

10 Critical Things to Look For in an Execution Partner

Deciding which Forex broker to partner with in your currency trading is a challenging decision.  There are so many different types of products and services out there.  The permutations and combinations are overwhelming.  Unfortunately, most people simply register with the first broker they find.

How do you make a “sound decision”?  That is the focus of this page. While there is no step-by-step process, we have identified10 critical questions that you should ask and explore before making your decision.

The 10 Most Critical Considerations  

1. Market Maker v. ECN - Do you want to deal with a market maker or an ECN.  This was one of the concepts discussed on our Forex Broker page. There are advantages and disadvantages to each type of broker.

  2. Regulation - We have said before that this industry is largely an unregulated one.  Notwithstanding, there are brokers who are registered with various regulatory agencies in their jurisdiction and those that are not.  The benefit of dealing with a firm that is registered is obvious - accountability.  If you have issues with a broker who is regulated, you may be able to lodge a formal complaint with their regulatory body.  If not, you are on your own in getting any kind of resolution regarding your issue. Inquire as to which government agency regulates forex brokerages in your jurisdiction.  Ask the forex broker themselves whether they are registered.  Verify this information with the applicable regulatory body.

3. Customer Service - Customer service is a critical feature in any execution partner that you choose.  If you cannot getsupport when you need it, it will cost you.  Do your homework first.  Find out how their customer support works.  Can you contact them via telephone, email, live chat?  Test them out. Call them, email them and chat with them.  See how responsive they are.  Some brokers out there are truly brutal in this regard while others are acceptable.  A select few shine.

4. Competitive Spreads -  The larger the spreads which your broker charges, the less profit for you.  It is as simple as that.  You need to find a broker who charges competitive spreads. Many ECN’s nowadays offer spreads less than 1 PIP for major currency pairs such as EUR/USD.  Do your research thoroughly before you choose a broker.  This is particularly important if your trading strategy involves scalping or high volume trading.  Spreads can easily eat up a substantial portion of your profits if you are not careful.

5. Intuitive Execution Platform - Not all trading platforms are alike.  Some are easier to use than others.  Some can be very thorough and advanced, but lack visual ease of use.  Others may be quite intuitive, but lack in functionality compared to others.  You must search around for a platform that offers you all of the tools and execution options you need in an easy to understand and intuitive user interface.  Fortunately, most brokers offer free demo accounts so that you can test out the system and see for yourself how it will be to operate and trade with.

6. Integrated Charting - You need charts to trade the Forex.  Look for a broker that offers charts that are integrated into the trading platform.  While you may want to use a premium charting service to do your major analysis, you need to see charts integrated with your trading platform for the simply reason that your charts need to originate from the same data feed as your currency prices in your trading station.  If your charting software is not operating from the same data feed, you could be many pips off between what your charts are telling you and the actual prices available on your trading platform.  If you are scalping, these few pips can be critical to your success. To avoid this, choose a broker that offers integrated charting.

7. Free Demo Accounts - The Forex industry is the first investment industry where you can actually get a real demo account to trade in real time.  Almost all brokers will give you a demo account where you can trade with play money.  The platform otherwise operates in exactly the same manner as a real trading account.  Demo accounts serve two critical purposes: 1.  They allow you to see how the trading platform operates without risking your real money, and 2. They allow you to practice your trading and evaluate strategies and tactics without risking real money. Do not go with a broker that does not offer demo accounts.

8. Acceptable Account Types - You need to ensure that your broker offers the kinds of accounts that are suitable for you.  Some brokers offer only standard accounts where you must trade in full lots.  Others will offer mini accounts where you can trade in what are called mini-lots.  These are one-tenth the size of a full lot.  Still others offer micro lots which are one-tenth the size of mini-lots.   If you only have $500 to invest, for instance, you really cannot trade with a broker who offers only standard accounts.

9. Suitable Broker Policies and Procedures - Each broker has its own policies and procedures.  Read them over carefully.  Do they charge a fee for withdrawing money?  What methods of withdrawal are available.  What are their rules with respect to trading spreads during news releases?  Not all brokers are created equal.  Make sure you understand how they operate before signing up.

10. Satisfactory Company History -  This one is simple.  Go with someone who has been around for a few years.  This business is one fraught with stories of fly-by-night brokers who are here today, gone tomorrow.  Don’t risk any sizeable amounts of capital opening an account with a new broker, no matter how attractive its product or service might seem.  If you really can’t resist, then limit your initial accounts to something very small.  This way, if they disappear, you don’t get hurt too bad.

The above are not the only things you need to consider, but they are, in our estimation, ten of the most critical factors.