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Risk Warning: Your capital is at risk. Statistically, only 11-25% of traders gain profit when trading Forex and CFDs. The remaining 74-89% of customers lose their investment. Invest in capital that is willing to expose such risks.

What to Look for in a Forex Broker

Author: Patrick Dresdner
Patrick Dresdner
All publications of the author

What to Look for in a Forex Broker

The forex market is the biggest and most active market in the world. In your search for the best forex broker for US traders, there are a few key benefits and features to look for depending on whether you’re a novice or a more experienced trader. Fees (commissions, spreads, and more), the overall trading experience, and the type of trading platform (mobile, web-based, charting, downloadable software, third-party offerings are among the most important of these.

Other essential considerations include the depth and breadth of product offerings (cryptocurrencies, fiat currencies, indexes, CFDs, spread betting, commodities), trustworthiness, customer support, and trading research and education.

Tips for Beginners

If you're at the beginning of your forex journey or even just about to start with forex trading, you’ll find it very helpful to work with a reliable broker because forex is not without its risks. Figuring out where to find a trustworthy brokerage or broker can be a daunting task. Making sure the company or broker is right for you is no less challenging.

Look for Licenses

In the event of a conflict or trade dispute, you’ll need someone to turn to. An unlicensed and unregulated broker will not give you any options. Working with a regulated service provider is a form of insurance. A dispute resolution policy is a good thing to have even if you never end up resorting to it.

Unregulated brokerages might offer lower or no fees at all, but the risks are too big. Some outright refuse to process withdrawals when you ask for your money. Forex traders have complained about unlicensed firms shutting down overnight. When the broker refused to comply with the user agreement, there was nothing they could do.

Read Specialized Reviews and Forum Posts

When you read Forex broker reviews, don’t use one single site or source. Non-profits are best because they’re most objective. Most review sites receive payment to recommend one brokerage or another. Read top rankings with caution. Above all, visit Forex forums to get tips from active traders. These forums are a rich and often untapped source of valuable information. You will read about real people’s experiences with different brokers, both good and bad.

Open a Demo Account

Eventually, you’ll narrow your search down to two or three brokers. You can test them using a demo account. However, do consider that it might not reflect the real thing.

Good old Google?

You’ve probably thought of doing a Google search. That’s how you came across this article maybe. While there’s no harm in good old Google, you won’t get a lot of info about the brokers themselves. This is why demo accounts and reviews come in real handy. The broker’s site will be overflowing with positive information about their offerings, but precious little detail. In every event, don’t commit to a deposit before you feel completely comfortable with your organization of choice.

Range of Tools

Not all currencies get the attention from traders they deserve. Only a number attract great interest and become volatile as a result. EUR/USD is the most traded currency pair in the world. Other popular choices include EUR/GBP, USD/CHF, USD/JPY, and GBP/USD. Choose a broker with many different pairs. Depending on your strategy, you can choose to trade exotic or traditional ones or more or less active ones.  

Trading Cost: Leverage, Spreads, and Commissions

We mentioned fees briefly, now for the details. All brokers have different account types or account offerings, most of which with different leverage and spread. For example, traders in Europe have access to different leverage amounts. Professional clients can get leverage of up to 1:500! This means a 500x profit on your wager in favorable conditions and a 500x loss in highly unfavorable ones.

In other words, you can hold a $50,000 position with an account size of just $1,000 with this kind of leverage. For retail clients, European brokers offer lower leverage – up to 1:30. In sum, we can only warn you to exercise a great deal of caution when using leverage – it can destroy your account at the speed of light.

Commissions and spreads can have an equally pronounced impact on your trading positions. All forex brokers make money with spreads and commissions. Commissions may involve charging a position size percentage. However, this isn’t all that common with forex. You’ll see it with CFDs, shares, and the like far more often.

Truth vs. Lies

Many forex brokers will try to assure you that you won’t pay a commission if you trade with them, insisting they make money through spreads only. This may or may not be the case but basically, the higher the charge, the wider the spread. The spread is nothing but the difference between a currency pair’s bid and ask price. It’s measured in pips and can vary depending on whether the market is volatile or not. With high charges comes the potential of low to no profits. There are also fixed spreads.  

Final Thoughts

A reliable broker won’t hesitate to launch an investigation into a trade you feel has wronged you. Don’t choose a broker that refuses to make its financial data publicly available. Regulated providers are required to do so by law. Just like regulation, financial transparency is critical to your comfort level in your interactions with the broker. Undercapitalized firms close down without warning when the forex market becomes more volatile, leaving clients with a big mess on their hands.

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Risk Warning: Your capital is at risk. Statistically, only 11-25% of traders gain profit when trading Forex and CFDs. The remaining 74-89% of customers lose their investment. Invest in capital that is willing to expose such risks.