The growth in the retail forex market has spawned an almost infinite number of brokers.

How to choose a forex broker

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The forex industry has made great strides in the past few years in the field of technology and solutions. Approaches to clients have been more targeted but there is still a long way to go in terms of reputation, as well as the safety and quality of the services offered.

Currently, many brokers work in straight through processing (STP) or electronic communication network (ECN) providing prices directly from the interbank market.

Spreads, fees and requirements regarding the size of the deposit have dramatically declined in recent years due to strong competition in the industry. Brokers allow trading at market prices with low commissions and capital starting from a few dozen euros. Since 2011 the improvements in technology have seen spreads fall, minimum deposits tumble and commissions almost disappear.  

Yet in 2011 account STP and ECN were opened starting from 500 USD or higher depending on the broker.

There has been a significant improvement in legal regulation. Brokers financial is a lot better but there is still some work to be done. Traders have been made more aware of their rights. Manipulation prices and a number of “sharp practices” which has meant that every trader is able to be confident that he is getting a fair chance to develop and use his skills and be profitable. As the market has evolved traders, using social media, have quickly stigmatised any broker who continues not to play by the rules. The SEC in the U.S. has now realized that it need to join the rest of the world in regulating the retail forex market and using its might it has levied huge penalties and exclusions.

In the U.K. the Financial Conduct Authority (FCA), which is the latest manifestation of regulatory authority closely monitors those brokers it has under its jurisdiction. This protects both the traders but also the brokers who can be subject to money laundering scams themselves.

Cyprus is a major domicile for retail FX brokers. Being a member of the EU Cyprus comes under EU regulation and its own regulator The Cyprus Securities and Exchange Authority (CySec) is working hard to clean up both its own and its members acts.

Geography isn’t necessarily your friend

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When deciding on a broker one of the first checks should be on where it is regulated. There is no 100% safe way to pick a broker. Read all you can but beware of making a decision based on “chat room advice” since an experienced “scammer” will have plants everywhere driving traffic to his site.

It does not pay in the long term to cut corners when choosing a broker. There are good well regulated brokers in some “strange” places just as there are “bad” “cowboy” outfits hidden in plain sight in well regulated places.

Therefore geography shouldn’t be a reason for your decision. If an offer is too good to be true it generally is. So price is an issue to take seriously. But, do not get caught up on spreads. That is the most common way to be caught out. You may see good price getting into a position and be totally “screwed”

Of course regulation is vital but keeping your eyes wide open is essential.

I have already mentioned the opinion of customers of brokers. It is good for background but more important to study the regulator or even get in touch. For example CySec won’t tell you a lot but it will guide you as will the FCA. Payment issues become well documented but again there are also traders who are “looking for trouble” so some of the comments need to be cast aside.

There are genuine reviews to be found on many forums for example, If a client is satisfied with the service, it is likely that we will be too provided we can verify the comments.

Brokers need longevity to add credibility to their offering. A steady but up to date technological offering with 24/7 support is vital. Even if the market is 24/5, the ability to contact help when the market is shut yet a need arises is very important.

There are a number of “operational factors which should drive the choice/decision: transaction costs, poor execution, price drift, swap costs, and frequent “downtime”. It is unlikely that anyone stays with their first broker for a long time since to “suck it and see” is the only way to tell if you like a particular broker.

The next criteria is the the characteristics of the broker and his offering. How many types of accounts does he offer? What instruments? Spreads. Minimum deposits, platforms, bonuses. All these are very important to your trading.

Reliability and consistency are the most important criteria. The more transactions you do, the more you will realize that transaction costs are eating into your profit or increasing your loss. As a “business” it is always important to control expenses.

As a trader you will be aware of price movements and therefore being able to open an account in your home currency is vital. You do not want to run an exchange risk on your capital.

If this is all becoming a little overwhelming and you haven’t even started trading yet, take advantage of a free offer of impartial advice.

FOREX brokers offer

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Brokers offers are a method of attracting customers and need to be reviewed for value for money. Different accounts offer different features like deposit size etc so it is easy to match an account to your needs. We are able to recommend brokers where they even offer micro accounts where the minimum deposit can be $5.00

Such accounts can be a little expensive to the trader as they are quite time consuming for the broker for little return. Clearly a trader who trades in $100k lots is more valuable than twenty traders who trade in 5K lots. Leverage tends to be lower on these accounts too.

There are also accounts which offer different instruments. Basic accounts tend to offer basic products. Others offer access to a wider range of currencies; crosses, minors and exotics. Also commodities, metals and equities.

The sophistication of your account can grow with you. Trading (relatively) modest amounts in six major pairs wont be expensive. Adding other features as you become more confident should pay for itself.

Spread is the number one factor and conversation piece for trading forums. It can be a source of pride, a source of anger, a source of profitability or a source of loss. It is, unfortunately, not that important. Obviously, the more you trade the more important the spread becomes. But look at it this way. When you enter a position, your broker doesn’t know what you plan to do but you do. You are only looking at “one-side” of the price. Therefore the spread is irrelevant. However when you are closing, keep an eye on an “independent” price and check what your broker is doing.

Variable versus fixed spreads are an interesting question. You may not always be given the opportunity to choose but if you are. A fixed spread is constant but you are set to that for the entire period. A variable spread is<supposedly, a factor of the market. Liquidity is such that a variable spread should ALWAYS be better than fixed.

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Whether the demo accounts are valuable?

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Broker offers in addition to investment accounts (so-called real, live) also a demonstration account (so called demo). These accounts are credited with virtual money impossible to payout in any way. Brokers make these accounts so that potential customers can become familiar with the operation of the platform and the basic nuances of trading, as opening positions, counting profit and generally with the mechanics of carrying out the transaction.

Many people advise to use demo account not only for learning support, but also to practice in investing for long periods of time and make sure that we are able to do this incrementally. Other voices, in turn, say that on the demo account there are no elements of the psychology of investing, and decisions that do not cost the real money are not able to do anything to teach us. It’s hard to judge this type of controversy and admit that one or the other side is right – perhaps both have some reason. Some brokers offer a demo account only for a certain period (e.g. 30 days), while others allow you to play in the sandbox trading indefinitely.

Another element of the broker deals are several kinds of Add-ons: promotions for customers, deposit bonuses, loyalty points, debit cards, training and webinars, etc. In investing in the Forex market is not about bonuses and loyalty points, but you cannot admit, that can be a very nice addition and many people appreciate these facilities. Initially, when we try to trade small amounts, you might want to look for different bonuses and “free cash” offers from brokers. In this way we reduce the risk and increase our opportunities. In the worst case bonus will extend our presence in the market and will allow to trade longer.

Opening Forex acount

The aim of the Comparic portal is to create a bridge between traders and brokers, through which traders can invest in the foreign exchange market.

Our mission is to provide readers with the latest and best information about brokers, their offer, promotions, competitions and events.

We try to keep on our list of recommended brokers only proven and trusted entities. Whenever possible we provide support to our readers, we respond to your questions, or as the editors of the major portal – we share these questions with the right people in the industry.

On demand, you get everything at the beginning: reliable, substantive and supportive in case of problems. In this way you are helping to  develop our editorial and increase our strength in dealing with brokers.

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