September 26, 2021

Top Forex Brokers

Navigating through the Endless Sea of Forex BrokersThere is no shortage of Forex brokers online and each one of them feels that they are superior to the rest. This can present a daunting challenge to traders hoping to make their mark in a Forex trading game by selecting Best Forex Brokers that is best suited to meet their unique requirements. 

There are a number of things that must be taken into consideration when selecting a broker. The most important are,

  • Regulation
  • Security
  • Types of Broker Model
  • Initial Deposit
  • Minimum Balance
  • Account Types
  • Spreads
  • Deposits and Withdrawals
  • Leverage Options
  • Trading Platforms
  • Customer Support
  • Execution Speed

Check out top 10 forex brokers for 2021

Type of Brokers and Business Models

There are four basic types of broker’s that offer retail investor accounts for forex trading. These are Market Makers, Electronic Communication Network (ECN), Direct Market Access (DMA) and Straight Through Processing (STP) brokers.

Market makers are dealing desk brokers, while ECN, DMA and STP brokers provide no dealing desk (NDD) order execution. Using a Dealing Desk broker or NDD broker can affect the spreads and associated trading costs.

Leverage and Margin

Depending on the broker, forex participants may have access to leverage made available in their margin account. For example, using 50:1 leverage, a trader with an account size of $1,000 can hold a position that is valued at $50,000. Some brokers offer as much as 200:1 leverage. Leverage works in a trader's favor with winning positions, since the potential for profits is greatly enhanced. However, leverage can quickly destroy a trader's account since the potential for losses is magnified as well. Use leverage with caution.

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

Regulation and Licenses

Forex business is regulated differently throughout the world, and official registration with the financial authorities of any particular country can be very specific.

It is essential that a trader or investor chooses a brokerage company which business activity is under control of a relevant regulatory agency. Many brokers choose to get registered in offshore jurisdictions, whereas other forex companies choose to stay onshore. Generally, offshore statutory provisions are more liberal and easier to comply with.

Regulatory agencies with fundamental approach and strict principles are based in Europe (first off, in Switzerland and Germany), United Kingdom, United States, Japan and Australia.

It is absolutely necessary that the trader has clear understanding about the regulatory status of their brokerage company or dealing desk. Regulatory status is an essential part of any business entity providing forex services and by this any potential trader can form an opinion about reliability of the forex broker.

A US broker must be registered with the US Commodity Futures Trading Commission (CFTC) as a merchant and retail Forex dealer. It also must be a member of the NFA (National Futures Association). These credentials are usually listed in the About Us section of the broker's website. Equivalents of these trade associations and regulatory bodies are present in nearly every country in the world. Depending on where their broker is based, traders should always research and look for these credentials. In this respect, it's also worth researching the year when the broker obtained its license as this might carry some significance as well, in regards to the overall reputation and operational history of the broker.

Here is a handy list of the most-respected regulatory bodies by country:

  • USA: Commodity Futures Trading Commission (CFTC)

  • Switzerland: Swiss Federal Banking Commission (SFBC)

  • UK: Financial Conduct Authority (FCA)

  • Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)

  • Australia: Australian Securities and Investment Commission (ASIC)

  • Canada:  Investment Information Regulatory Organization of Canada (IIROC)

Security

There is little sense in opening a trading account if deposited funds are not secure with the broker. A reputable broker will have a clear history and successful track record. Furthermore, they will be a member-in-good-standing with a financial regulatory authority.

Every regulated broker is subject to a "Net Capital Rule" which prescribes a minimum amount of capital to be kept in liquid form. This way investors are protected with a 'safety net' in the event that a broker is forced to close. In addition to the requirement of maintaining minimum capital requirements, regulated brokers in most jurisdictions are required to keep all client funds separated in segregated accounts so that client funds won't accidentally (or purposely) be used for any reasons other than to execute the client's trades. Some nations, such as the United Kingdom, even offer government-backed deposit insurance for its regulated brokers so that clients can recover part or all of their funds even if the broker manages to misappropriate them.

 

Multi-Feature Trading Platform

The trading platform is the gate between the retail trader and the markets. It is also the tool through which the trader performs his trading. A proper, simple, fast and user-friendly trading platform is critical in trading successfully.

When it comes to Forex, trading activities normally happen via the brokerages’ trading platforms. All good brokers in this industry cater to customers with intuitive yet multi-feature platforms, the most commonly used ones being MetaTrader 4 and MetaTrader 5.

When choosing a Forex broker, make sure you check what features its platform supports. Some of the must-have functionalities you should look out for include charting and technical analysis tools, automated trading, real-time quotes, options for customization, multiple timeframes, trading through charts, different types of order execution, and backtesting. Multi-language support is always a plus.

Spreads and Commissions

In the Forex world, spreads are of utmost importance. Given that brokers receive commission for their services by widening the bid-ask spread past quoted values, a wide bid-ask represents a larger sum of money being taken from the profit margin and given to the broker. Traders are required to pay this fee regardless of whether they gain or lose the trade.

Spreads and commissions are next on the list. All brokers out there profit from the spreads built into the bid/ask prices or by charging commissions on your trades. There are also firms that have no fixed commissions whatsoever but compensate for their absence by using steeper spreads.

Spreads are either fixed or float based on market volatility. Suppose, for instance, the pair GBP/EUR is quoted with a bid/ask price of 1.1535/1.1539, which corresponds to a spread of 4 pips. Thus, if a market participant buys it at 1.1539, the value of this position has already dropped by 4 pips because it could only be sold immediately at a price of 1.1535.

Initial Deposit

While most new traders would prefer to keep their initial investment smaller until they ‘get their feet wet’, many well-qualified brokers choose to keep initial investments higher in hopes of ensuring that they are only signing on the most serious traders. Unless you only have a minimal amount of funds, the initial investment should be one of the last things considered when deciding on a broker.

Minimum Balance

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.

Deposits and Withdrawals

It is never wise to trade Forex if it is difficult (or impossible) to easily withdraw earnings. Ultimately, the broker you choose to work with must facilitate account termination in the event that you are not satisfied with the services they offer, regardless of whatever reasons for account closure you might have.

On the other end of the spectrum, there should be no problems with the depositing fund with the broker. If the deposit process is not an easy transaction, it is unlikely that the broker is capable of ensuring a great trading experience.

Each forex broker has specific account withdrawal and funding policies. Brokers may allow account holders to fund accounts online via credit card, ACH payment, PayPal, wire transfer, bank check, or business or personal check. Withdrawals can typically be made by check or wire transfer. The broker may charge a fee for either service.

Fast Speed of Order Execution

The speed of order execution is of essential importance, even more for those who engage in day trading and place market orders. It is of utmost importance that your brokerage fills your orders with lightning speed at the best possible prices.

If order execution is slower, the prices might move a few pips until the broker fulfills the order, which reduces your chances of winning this trade. The average order speed at the best Forex brokerages is as fast as 0.001 seconds.

Customer Service

Forex trading occurs 24 hours a day, so a broker's customer support should be available at any time. Also consider whether it's easy to get a live person on the phone. A quick call to a broker can give you an idea of the type of customer service they provide and average wait times.

These are only a few of the things that novice Forex traders must be wary of when researching and selecting potential online brokers. With a little research and a well-thought list of criteria, it is possible to enjoy a safe and profitable trading experience.

Can a forex broker go bust?

There are never any guarantees and even regulated brokers can default. The most famous example in recent years was MF Global. However, choosing a regulated broker means there is a government agency that will be working on your behalf if you cannot access your funds. Regulated brokers are required to segregate client money into a separate bank account than the account the forex broker uses for business operations.