CBI, FSA, ASIC, ADGM, FRSA, BVI, FFAJ
20% deposit bonus
ASIC, VFSC, FCA
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BVI, FSC, LFSA
Up to 50% & Draw for Tesla
CySEC, FSB, IFSC, FCA
Rebates upto $5 per lot
ASIC, CySEC, FCA
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Spreds: 1 PIPs
Spreds: 0.0 PIPs
Spreds: 0.0 PIPs
Spreds: 0.4 PIPs
Spreds: 1 PIPs
Spreds: 1 PIPs
Spreds: 1.5 PIPs
Spreds: 2 PIPs
The Definitive Guide to Choosing the Best Forex Broker
Many traders do a lot of due diligence on most aspects of a Broker’s profile without giving too much thought to the domicile of the Broker. The assumption that a broker from one jurisdiction is equal to another broker from a different jurisdiction is incorrect, and can lead to unnecessary headaches down the road.
It is imperative that you do your due diligence and homework on the Broker to make sure that they are located within a country or region that has a solid regulatory body which will oversee operations of FX broker dealers. If you were to have any issues with your forex broker, it will be easier for you to recover your funds if the currency broker is located within a tightly regulated country.
Be careful of forex trading brokers that are located in the Bahamas or Panama as regulation in these areas is quite weak. Trying to claim your legal rights in these jurisdictions can be challenging at best.
One of the best way that you can protect yourself and your account is by making sure that there is a well established regulatory body within the country or region that the Forex Broker is located in. The best forex brokers are properly registered and have an overseeing regulatory body. As such, there is a certain level of recourse that a broker’s client has against disputes that may arise. In addition, in the case of bankruptcy or insolvency by the forex broker, there will be set procedure that dictate how client funds are to be handled.
Regulation makes is difficult for brokers without the proper requirements to operate in their jurisdiction. This in itself sometimes deters less reputable brokers from ever trying to gain licenses from these regulatory bodies.
Though there is no guarantee that even the best forex brokers in the world within well regulated jurisdictions will not fail, the level of security for your funds will generally be much better than with unregulated brokers.
Below is a list of countries and their respective regulatory agencies:
- United Kingdom: Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), Financial Services Authority (FSA)
- Australia: Australian Securities and Investment Commission (ASIC)
- Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)
- South Africa: Financial services Board of South Africa (FSB)
- United States: Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA)
- Cyprus: Cyprus Securities And Exchange Commission (CySEC)
- France: Autorité des Marchés Financiers (AMF)
- Switzerland: Swiss Federal Banking Commission (SFBC)
- Canada: Autorité des Marchés Financiers (AMF)
- Ireland: Central Bank of Ireland (CBI)
- European Union: Markets in Financial Instruments Directive (MifID)
- British Virgin Islands: British Virgin Islands Financial Services Commission (BVIFSC)
- Belize: International Financial Services Commission (IFSC)
The financial stability and security of a well funded forex broker should bring some peace of mind to you. In the course of your due diligence process, it is important to know how financially strong a forex brokerage institution is. Some forex brokerages are small operations with just a handful of employees, others are among the biggest FX brokers and can be large organizations that are owned by a Parent company or Holding company.
Many times you will find information about the strength of the brokerage firm thru their company website or thru the regulatory body’s website. Most reputable brokers in highly regulated regions will be required to hold client funds in segregated accounts. The safety of your account should be your primary concern and working with a financially strong capable forex broker will go a long way towards that end.
It is often said in business that “Reputation is Everything”. And this axiom certainly holds true in the forex broker realm. There are new foreign exchange brokers that spring up by the dozens every year, and some of these companies are located in regions where regulations are quite relaxed or non existent.
Even those brokers that have gone thru intensive regulatory requirements many still not always abide by the best practices espoused by their governing bodies. Ultimately, it is upto the individual forex trader to make sure that they are placing their funds with a reputable broker with a solid forex broker rating.
Ok so we know that the reputation of the forex broker is important, but how would one go about finding this information? There are a few ways. First and foremost is to ensure that you are planning on trading only with a regulated forex broker. The top forex brokers list at the beginning this article should help you decide among good forex brokers that are a right fit for you.
You can check the regulatory agency website to make sure that there are not any major complaints surrounding the broker in question. In addition, you can check online forex broker reviews, and forums to get information from past and present customers of the broker.
One of the best detriments of how reputable a company is will be the actual age of the company. Most forex brokers who have stood the test of time and been in business for at least 7 or 10 years are good candidates that may be deserving of your business.
Spreads and Commissions
The biggest transaction costs in forex trading comes in the form of commissions or the dealing spread. Every time you execute a trade you will pay either a fixed commission on the trade or you will pay via the brokers bid/ask spread. Commissions and spreads are the means by which forex brokers earn a profit on their business.
Using a broker that has competitive spreads will effectively help your bottom line, but you do not want to sacrifice joining a broker with poor execution or one that is unregulated for the sake of lower transactions costs. There should be a healthy balance between both transaction costs and other criteria that you consider important when doing a Forex brokers comparison.
Typically brokers can be categorized as having three types of spread/commission structure – Fixed Spreads, Variable Spreads and Commission Only.
- Fixed Spreads – Fixed Spread Brokers markup a certain fixed amount of pips on the actual price. Fixed Spread Brokers do not charge a commission on the trade.
- Variable Spreads – Variable Spread Brokers also markup the price of the currency pair, but do so based on market conditions, and as such their markups will be variable. During highly liquid times, you can expect the spreads to narrow, and during less liquid or news related times the spread could widen considerably. Variable Spread Brokers do not charge a commission on the trade.
- Commission Only – Commission Only Brokers will not markup the dealing spread provided to them via their liquidity network, but instead make their profit thru a commission structure based on a per lot basis.
The trading platform serves as the portal or gate between you, the retail trader, and the markets. It is the primary tool from which the trader performs their market related activities. A solid trading platform is as essential to the trader, as a sharp scalpel is to the surgeon. One of the most stable and popular trading platforms for Forex trading is Metatrader 4. There are other broker specific platforms as well, but Metatrader is by far the most widely used.
Most of the top FX brokers offer demo accounts so that you can test drive any of the Trading platforms that they support. This is usually a good idea, and will help you become more comfortable with the platform when you decide to switch over to a Live Trading Account. Keep in mind that the trading platform does not need to be overly fancy or have a lot of bells and whistles. Many times these additional features can become a distraction. A simple, yet powerful platform that is fast and user friendly will typically prove to be the most robust.
In most normal market conditions, when you hit the Buy or Sell button on your trading platform, you should expect to get a speedy trade execution at your specified price. Every reliable forex broker will try to ensure this type of execution for their clients. Currency brokers offering solid execution should be able to fill your order within seconds not minutes, and should have minimal re-quotes.
During volatile market conditions, you may not get this type of fill. Instead you may experience delays and/or excessive slippage on your orders, but this is sometimes out of the hands of your broker. But during normal market conditions, you should demand the proper trade execution practices from your broker.
Demo accounts do not provide a true barometer of the broker’s execution practices. So essentially, without trading a real account with the broker, you will not be able to fully test their execution abilities.
There are several different types of trading accounts that are offered by various forex brokers. Some of these include a Demo Account, a Live Micro Account, a Live Mini Account, and a Live Standard Account. Below is a brief description of each:
- Demo Account – A Demo account is a simulated account or practice account that allows a trader to trade using virtual funds. This is best suited for new traders who are still learning the ropes, and for more experienced traders who are looking to test out various trading strategies.
- Live Micro Account – A Live Micro account is smallest size trading account available. A micro account allows the trader to trade in increments of .01 lots.
- Live Mini Account – A Live Mini account is usually the most popular type of trading account for newer traders. Most forex brokers offer a mini lot account which allows a trader to trade in increments of .1 lots.
- Live Standard Lot – A Live Standard Lot account is geared more for experienced traders with higher levels of account size. Typically these types of accounts will get the most favorable spreads, and access to other premium tools and services.
As you can imagine, each trader will have a different type of experience level and funding capability. And such, it is important that each trader analyze their unique situation so that they can best decide what type of account is best suited for them.
Currency Pairs and Instruments
Most forex traders will obviously want access to all the major currencies, along with most minor currencies and some exotic pairs. But beyond that, you may also be interested in other instruments and asset classes including CFDs, Stock Indices, precious metals, commodities, cryptocurrencies, and more.
There will be some forex brokers that offer a wide range of instruments to trade, while others will specialize only in certain asset classes. Based on your requirements, you want to make sure that your prospective broker will allow you access to your preferred trading instruments.
So if you are a trader who is currently interested in many different types of markets or may feel that you will want to eventually tap into capital markets beyond currencies, then it may be wise to choose a broker that has a wide range of product choices.
Deposits and Withdrawals
Each Forex Broker will have their own policy around depositing and withdrawing funds. Understanding this policy will help you avoid any confusion or delay in setting up your trading account or withdrawing the funds when you need it.
For account opening and funding a Live account, a broker may allow you to deposit funds using a Credit card, ACH payment, Wire transfer, PayPal, business or personal check or a host of other options.
Withdrawing funds can typically be done using similar methods as depositing funds. Keep in mind that there may be withdrawals fees or other misc fees that apply. In addition, you may have to wait a few days before the withdrawal request is processed. Be sure that both the deposit and withdrawal policy of the broker is in line with your expectations.
Bonuses and Promotions
Competition among top Forex Brokers has been increasing steadily over the years. This is good news for retail forex traders who want to enter the market. In an effort to attract client business, more and more Forex Brokers are offering exclusive bonuses and incentives for signing up. There are many different types of bonuses available depending on the Broker. Its a good idea to check out the bonus offerings of the most popular forex brokers that you are most interested in working with.
Below are the most common types of bonuses or incentives available from some of the largest forex brokers:
- Deposit Bonus – This is one of the more common types of bonuses. It is an actual money incentive typically reserved for new clients who are depositing funds with the forex broker for the first time.
- No Deposit Bonus – A No Deposit Bonus is a less common type of bonus offered by a forex broker. Typically with a No Deposit Bonus, the forex broker will reward you with a monetary reward in the trading account without any funding requirement by the client.
- Forex Rebates – Forex rebates offer the trader a chance to receive a rebate, typically in the form of cash back for trades placed within their account on a per lot basis. This type of rebate is usually more worthwhile for more experienced traders.
Identity theft is a real issue in today’s world. When you open an account with a forex broker you will be required to provide some personal and financial information. This could include your bank account, passport, utility bills, and other sensitive data. It is imperative that the forex broker has a secure website and is using SSL-encryption technology to secure your data. In addition, they should have a solid data security infrastructure in place to prevent any potential DDOS attacks.
There are three main classes of Forex brokers – market markers with dealing desks, Straight Thru Processing Brokers (STP), who markup the price and pass on your order to the interbank market and ECN forex brokers that allow you direct access to the best bid/ask pricing provided by the largest liquidity providers.
A dealing desk broker is a market maker that acts as a counter-party and takes the other side of your trade. This broker’s primary business model is to profit from the bid ask spread as clients execute entry and exit orders. These brokers are not working against you as some may have you believe, but instead they are the liquidity provider for their clients, and balance their risk by having offsetting positions either with other clients and/or counter-parties. Dealing Desk brokers typically set the pricing available to their customers and will usually provide fixed dealing spreads.
A STP Broker is responsible for routing client orders to the interbank market. The interbank market consists of large banks and institutions that provide deep liquidity to its participants. STP forex brokers are typically compensated by adding some fixed fractional pip to the pricing.
ECN brokers allow clients direct access to the Electronic Trading Network (ECN) where you can gain access to a deep liquidity pool and ensure the tightest spreads currently available in the market. ECN brokers do not markup the prices quoted, but instead rely on a fixed commission structure as compensation for their service.
Leverage allows a trader to take larger positions with a relatively smaller amount of deposited funds. This will act to magnify gains on winning trades, but as a downside, it will also act to magnify losses on losing trades. Forex brokers offer a varying assortment of leverage caps, and sometimes these caps are limited to certain levels based on country specific regulations. For example, in the United States, the maximum allowable leverage is 50:1. Many European based brokers, however, can offer leverage on currency pairs typically ranging from 100:1 to 1000:1.
Aggressive traders tend to choose FX brokers that offer high levels of leverage, but for most traders with moderate to conservative risk appetites, the leverage offered on the lower end of the scale would still suffice. Traders should also keep in mind that leverage is a double edged sword, and just because a forex broker offers high leverage limits doesn’t mean that you should be utilizing the maximum amounts at any time.
Some traders prefer to program their trading methodology within an automated trading platform, so that orders can be automatically executed based on the system’s logic. A major advantage of automated trading systems is that it allows a trader to program the system logic and then they can step away and let the system trade on their behalf from then on. It reduces or eliminates much of the emotions involved in trading, as an automated system will execute a trade without any emotional consideration.
The preferred platform for many retail systems traders is Metatrader 4. Within this platform traders can create “Expert Advisors” or EA and run them either directly on their own computers or on a Virtual private server (VPS). Virtual private servers typically come at a cost but some brokers will subsidize the cost of the VPS or even offer a free VPS service to clients who make minimum deposits with the broker.
If you prefer to trade using automated strategies, then you would need to make sure that your broker provides the necessary infrastructure for you to auto trade your strategy.
In today’s fast paced world, many traders need to have access to their trading platform via their mobile devices while they are on the go. Fortunately, the best currency brokers offer one or more mobile trading apps that will allow clients to manage and trade directly using their mobile devices. One of the more popular is the Metatrader Mobile app which is now available for iOS, Android, and Windows phones. In addition some brokers have their own proprietary trading platform which can sync via their custom mobile app.
Typically you can perform most of the functions on these mobile apps that you would be able to perform if you were accessing the platform from your desktop. This includes opening and closing positions, managing open positions, setting stop and limit orders, and checking exchange rate prices and monitoring charts. So if you are a trader on the go, you may want to research the types of mobile trading features that are available thru different FX brokers.
Some traders consider themselves to be self-directed and prefer to trade on their own with little to no outside influences. Some other traders, however, prefer to trade alongside more experienced traders from whom they can learn and copy signals.
There are a number of social trading platforms in the market, but one of the standouts in this category is eToro. They have revolutionized the way social trading works and they currently have an active community of over 4 million traders using their technology.
Social Trading can be beneficial for both Followers and Signal Providers. As a new or aspiring trader, you can follow and copy trade signals from more experienced Forex traders within your own account, which allows you to profit from the research of other traders.
Signal providers can benefit as they can make some additional income on the side based on the number of followers that they have on the platform or the volume of trades that the followers generate.
Most traders prefer to make their own decisions when it comes to trading the forex markets. There is, however, a class of investors that would like to get involved in the currency markets, but do not either have the time to devote to learning how to trade effectively or simply prefer to have an experienced manager handling the trading decisions on their behalf.
For investors who choose to have their account managed by a designated professional, they would need to look at opening a Managed Account with a Forex Broker. With a Managed Account, the investor retains full control over the account but would give the designated manager authority to trade the account on their behalf. This is usually done thru a Power of Attorney agreement.
Managed Accounts are typically more suited for investors with a larger capital base. Most managers will require a minimum of $ 20,000 or more. If a managed account sounds attractive to you but you do not have the capital to meet the minimum required by a manager then as an option you could look into various Social trading platforms that allow you to copy trades directly from other, more experienced traders.
Being able to reach your Broker’s support team when you need to is a must. This is particularly true if you are a beginning trader that requires some guidance during the early stages of your learning curve. It can be very frustrating to be on hold for long periods of time or worse not be able to contact your broker directly when you have a question or require immediate attention.
In choosing the best online forex broker you should consider those that have 24 hours a day, 5 days a week support. Some brokers actually offer 24 hours a day, 7 days a week support as well. In addition, if English is not your primary language, then you may want to find a broker that offers support in your first language.
You should expect your broker to be accessible to you and assist you in any manner related to their service or platform. Remember you are the broker’s customer and you should be able to get the assistance that you require in an acceptable period of time.
Traders that have been around the markets for some time will surely be familiar with what broker re-quotes are. But for some newer traders that may not be familiar with re-quotes we will define what it is exactly. A re-quote occurs when your trading platform shows a certain price, and when you go to initiate the trade, you would get a message asking if you want to continue with the trade at the new, often worse “re-quoted” price. This can be frustrating to all traders, but particularly to short term traders that depend heavily on fast execution at their specified price.
Typically, this can happen in fast moving market conditions when some brokers will tell you that they are not able to fill your order at the exchange rate shown on your screen but offer you the option of dealing at the new price. Reputable forex brokers will try to maintain a minimal re-quote policy as a best practice. You want to make sure that your broker is not only offering you a competitive spread, but as importantly is letting you deal on those advertised spreads.
Negative Balance Protection
Every trader would agree that a certain degree of volatility is required in order to take advantage of price moves within the foreign exchange market. And a healthy amount of volatility coupled with a reasonable amount of leverage can produce impressive profits for the trader. But equally if not more importantly, traders should keep in mind that there may be times when a trade goes against you in a way that you may face a margin call from your broker.
Forex Brokers’ margin call policies vary widely. With a margin account, you could face the loss of not only your account capital but any losses that occur that are beyond the capital in your account. During unusual events or highly illiquid conditions, a broker may not be able to execute your stop loss or get you out of the market even if your account is wiped out.
It is important to know what type of policy your broker has in reference to margin calls and negative balances. Some brokers offer what is known as “Negative Balance Protection” which means that if a situation arises where the broker is unable to close out your position before your account goes negative, then you would not be responsible for any losses outside the funds in your account.
Stop Loss Slippage
A stop loss order is typically set to be a market order at your specified stop loss price. Stop loss slippage occurs when your stop loss order is executed and filled at a price that is further away than your specified price. This causes you to lose more than if the stop loss order was filled at your specified price. So essentially slippage is the difference between the specified price and the actual filled price.
Normally slippage is caused by a lack of liquidity in the market that you are trading. So when there is some volatile period in the market, you can expect some slippage on your trades. There are some Brokers that offer Guaranteed Stop Loss (GSL). Brokers who offer GSL will execute the trader’s specified stop loss at that specified price without any slippage – guaranteed regardless of market conditions. Choosing a GSL broker may be a good option for traders who intend on using high leverage or news traders that trade during potentially volatile market conditions.
Before you can start trading, you will need to deposit funds with your forex broker. Do you prefer to fund your trading account using a credit card, check, wire transfer, a payment processor such as PayPal, Neteller, or Webmoney or do you intend to fund your brokerage account using some other means?
Do not assume that your broker accepts all different types of funding options. Each broker will have their own policies regarding which payment methods they accept and which ones they do not. It would be wise to check the exact methods of payment available at the broker so as to save you time in case the broker doesn’t accept your preferred funding option. For the best forex brokers list above, you can do this by reading the individual forex broker reviews page which will provide this information in detail.
Aside from policies set by the broker themselves, there are certain regulations within some countries which prevent brokers from accepting certain modes of payment for funding a forex account. For example, in the United States, brokers cannot accept credit cards as a funding option.
Front Running is an unethical practice whereby a Broker who has a large commercial order will hold the order, and step in front of that client to buy or sell for their own internal account. When this is done, the Broker can enrich themselves as prices are driven higher or lower from a large potentially market moving commercial order.
Most small retail traders will typically not be effected by this type of activity, as they will not have large enough orders that would move markets. But large hedge funds and CTAs can be impacted by Broker front running activities, and cause them to get fills that are less than optimal.
Tools and Resources
If you are a new trader, then you will typically require some additional resources that can help you get off the ground. Broker training materials including ebooks, webinars and premium articles may be useful in speeding up your learning curve. Other Broker resources that can provide value are sentiment tools, technical and fundamental outlook analysis, economic calendars, news wires, and various trade related calculators.
Many of these tools mentioned are free of charge and readily available across many different forex related websites, but there may be some proprietary tools or resources that are only made available by your broker for its own client base. Knowing what resources are most valuable to you can help you narrow down your choice of broker.
The major transaction cost involved in trading will include any commissions and/or the dealing spread that you pay for the privilege of entering orders with the broker. But in addition to these costs, some Brokers will also charge various miscellaneous fees. Miscellaneous fees can be in the form of wire fees, withdrawal fees, inactivity fees, paper statement fees, account transfer fees to name a few. Make sure you are aware of the different types of miscellaneous fees charged by your forex broker.