September 26, 2021

Top Forex Brokers

How to Select a Reputable Forex Broker You Can Trust

Given the growing number of options available, it is becoming increasingly difficult for a ‘newbie’ Forex trader to decide on a broker. In fact, the chances are pretty good that many new traders haven’t got a clue where to even begin. And, there is nothing wrong with that.

Listed below are three simple steps to help guide new or inexperienced traders in finding a broker that will best suit their needs.

Step 1: Know What to look for in Forex Brokers

Prior to comparing or short listing potential brokers, you must first know what criteria to be mindful of. Here are a few questions to get you started:

Regulations

The first thing that you should look at when selecting a broker is to see if the broker is regulated by a competent regulatory agency(read more about Forex and CFD broker regulations). By dealing with a regulated broker, you can have the assurance that the broker has met the operating standards imposed by the regulatory body. Some of these standard regulatory requirements include having adequate capitalization and maintaining segregated accounts in order to protect the clients’ funds. Additionally regulation offers fund protection should the firm become insolvent and ensures the broker is upholding rigorous standards as a financial service provider.

Countries that have financial regulatory agencies that are backed with strict regulatory enforcement include:

  • Australia  (ASIC)
  • Eurozone (Mifid and local regulators)
  • India (SEBI)
  • Japan (FSA and JSDA)
  • Switzerland (FINMA)
  • UK  (FCA)
  • USA (CFTC and SEC)

Dealing Desk vs. ECN Brokers

Dealing Desk brokers work similarly to the dealing desks provided by various financial institutions and banks. A Forex broker who uses a dealing desk and is registered as a Retail Foreign Exchange Dealer and Futures Commission Merchant (or equivalent in another country) can offset trades. The No Dealing Desk system on the other hand offsets positions automatically and then transmits them to the interbank market. Brokers working through a Dealing Desk system do not work directly with market liquidity providers, therefore only one liquidity provider remains in the equation, and that gives birth to a fundamental conflict of interest.

An ECN broker on the other hand, offers its traders direct access to the other market participants through an Electronic Communications Network. Why is an ECN broker the superior of a Dealing Desk one spreads-wise? Simple: because it deals with price quotations from several trading entities, it can offer much better bid/ask spreads.

The business model of an ECN broker is an entirely fair one, as it eliminates a major conflict of interest: because it matches trades between various traders, it cannot become the sole market-maker, thus it cannot trade against its own clients. Another advantage of the ECN is that because of the lower spreads it offers, such brokers can charge a fixed commission on every transaction. However, you should not see ECN brokers as a panacea. Under certain conditions, their liquidity can dry up completely, creating much greater slippages than Dealing Desk brokers’ client might be suffering. Another sad reality is that many brokers describe themselves as of the ECN type, but have an element of dealing desk within their operation, so are not “true” ECNs.

Dealing desk vs. Non-dealing desk
Dealing desk brokers use their capital against you. If you make an order, that order goes against the broker’s capital. So when you lose forex broker is winning.
No dealing desk means that you trade on the interbank forex market. When you make an order, you directly trade on the market. Big forex brokers usually offer non-dealing desks. Non-dealing desk trading has disadvantages like lack of trading bonus, no demo account, a small number of payment options, etc.

Trading Platforms

Traders are free to choose which kinds of hardware and trading applications suit them best. Some traders choose web-based applications, whereas others stick to desktop software. Choosing the right trading platform is essential for traders in relation to their trading preferences.

Any trading platform that comes into the view of potential clients should prove to be reliable enough to avoid frequent freezing or system crashes, which are likely to occur during global breaking news or events. Therefore, we consider reliability to be #1 feature of any platform, whereas design and facility come next. This is of particular importance to aggressive traders (intraday or scalpers) making frequent trades in long sessions and at any time in a 24-hour period.

A trading platform should be efficient in placing an order or closing a trade promptly.

One-click operations are advantageous in trading and managing limits, stop-losses, etc. Many platforms also offer such benefits as additional tools and charts.

Account Types

Variable Spread Account Types: fluctuates with market conditions

  • Commission Accounts: Low spreads with flat-rate commission fees, often referred to as ECN-style account types.
  • No Commission Standard Accounts: No commission fees are charged on top of the spread
  • Fixed Spread Accounts(micro accounts): predetermined fixed spreads remain constant regardless of market conditions

Order Entry Types

The trade execution screen on the demo account offers a ton of useful information. Look for a variety of trade entry types and stop orders as well as safety provisions that may include Guaranteed Stop Losses and Close All orders. Many of these order routing methods are designed to protect the trader against excessive slippage, which denotes the difference between the expected and actual execution price. 

The following order types should be the minimum requirement for any broker you choose: 

Market Order – the order will be filled immediately at the best available price. This can incur excessive slippage in fast-moving markets, executing cents or dollars away from the bid or ask price listed at the time of entry 

Stop Order – sends a conditional buy or sell order that turns into a market order at the chosen entry price 

Limit Order – sends a conditional buy or sell order that can only be filled at the entry price or better 

Stop-Limit Order – sends a conditional buy or sell order with two prices, stop and limit. The order turns into a limit order at the chosen stop price, filling only to the limit price. The order will cancel automatically if the quote passes through the limit price without getting filled 

Guaranteed Stop Loss – sends an order that’s guaranteed to be filled within the requested parameters as long as the quote passes through that price 

Close All – sends an order to close all open positions at the best available prices. This can incur excessive slippage in fast moving market conditions

Customer Support

Getting in touch with your broker should be quick and easy. As well as contact methods, it is important to note the hours of operation. Many brokers will offer 24/5 customer service, with few providing support 24 hours a day, 7 days a week.

Common contact methods include email, phone and live chat. Online live chats are becoming increasingly popular as traders can instantly connect with customer service representatives and have their questions answered.

Depending on your location, multilingual customer support may be necessary. A top forex broker should provide multilingual customer support, with minor languages supported.

The kind of questions that you should ask include:

  • How the broker maintains the safety of your funds
  • The broker’s regulatory status
  • The range of instruments that is available for trading
  • Their business model
  • Their customer service hours
  • Their deposit and withdrawal process and whether there any fees involved
  • Whether there are any conditions attached to the value added services provided

Commissions & Spreads

This market unlike other traditional financial markets mostly operates on spreads rather than commissions. This is the reason why most brokers advertise their services as being commission free.

So how do brokers make money?

Simply, they earn by charging traders a spread. The spread is the difference between the buying price and selling price. For example if the Bid & Ask price for the EUR/USD currency pair is 1.0875/1.0878, this means the spread is 3 pips.

As a Forex trader, you will come across 3 kinds of trading cost structure charged by a broker:

  • Fixed spread – where the spread is not changing and you know the spread amount before you trade.
  • Floating spread – this spread is variable and always moving depending on the market volatility.
  • Commission fee – this is calculated as a percentage of the brokers spread. You should be aware of the amount payable before you trade.

Generally for traders looking for certainty with their trading costs, fixed spreads will be the preferred choice. Traders who are looking to pay a smaller spread would prefer floating spreads. Ultimately as to which is better will depend on your specific trading needs.

The kind of spreads that you will receive depend to a large extent on the kind of business model the broker is operating on.

Ease of Deposit & Withdrawal

Being able to make deposits and to withdraw money from your broker quickly and easily is highly important. This all depends on the type of withdrawal and deposit options your broker supports. The selection of these payment solutions needs to be as large and as diverse as possible. It is also a good idea to check the withdrawal time, as many traders complain that it can take up to a week to withdraw, when they wanted their funds available quicker.

Minimum Balances

The term "minimum balance" refers to the amount of money the trader needs to keep in his/her account to keep the account open and to receive the services he/she has signed up for. Obviously, the smaller this amount is, the better it is for the trader.

Step 2: Shop around, Compare, Rate and Review Forex Brokers 

Online Forex broker review boards and forums are often the best place for newbies to start their search. These sites offer real-world advice, feedback and reviews from traders who have actually signed on with the brokers. Be mindful, however, of the reviews that are factual and those that are merely negative remarks from disgruntled traders.

When reading reviews, use your better judgement to determine if the reviewer has a valid complaint or if trader inexperience was to blame.

Your first steps with Forex broker should include:

  • First, open a demo account and take note of the trading conditions. Your orders should execute instantly. Spreads should be tight and the platform stable, not crashing all the time.
  • If the demo works well for several weeks, then open a live account, with a fraction of the capital you intend to deposit. For example, if you have $10,000 to deposit, start by only putting in $1,000.
  • Trade the live account with your partial deposit for at least two weeks. During this time, continue to test customer support, asking them questions and assessing how quickly they respond.
  • Initiate a withdrawal for some of the funds in your account. Depending on your withdrawal method, this may cost you several dollars, but it's worth it to know whether withdrawals can be done easily.
  • If everything seems good after all this, you've done your due diligence. Deposit the rest of your capital and begin trading as usual. 

Step 3: Register for Free 'demo' accounts with you broker and ask a lot of questions

The final step to sourcing for the most suitable broker is to select, at minimum, two different brokers who each very closely meet your requirements and initiate the process to start demo accounts.

Attempt to trade in different markets and educate yourself on the various features of each trading platform. Do not be afraid to ask as many questions as possible – the feedback and responsiveness of the broker will also verify the broker’s willingness to communicate with their clients.