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Choosing the right Forex broker is an important step for any Forex trader. You'll be giving your trading capital to this broker, so check them out before you make a deposit.
Alright, here's what beginners should look for…
Do Your Due Diligence
Forex brokers come and go, so it's important to do your basic research on a broker. This can be done in about an hour on the internet.
Find out things like:
- Which country are they regulated in? Is it a country with strict regulation?
- Are they actually registered with the agency that they say they are? Some shady brokers will list a registration number, but won't actually be registered (example).
- How much do they have in capital reserves? This information is not always available, but the more the better.
- How long have they been in business? There are legit new brokers, but a broker is generally more reliable if they have been around for awhile.
- Does the broker accept customers from your country?
- Are there any registered complaints about the broker, with the regulating body?
Many beginners look for brokers with the lowest spreads, but ignore the points above. These factors are much more important than a low spread.
To find out which brokers I suggest, see the short list here.
If the broker looks good after your research, then take a look the following factors.
What to Look for in a Forex Broker
Now take a look at:
- Are the spreads fixed or variable?
- Do you pay a spread, a commission, or both?
- How much does it cost to deposit and withdraw money?
- Is it easy to withdraw and deposit money?
- What's the minimum deposit amount?
- Is the broker ECN or Dealing Desk? Each has advantages and disadvantages.
There are no right or wrong answers here. Choose what works best for you.
How to Test a Broker
Once you have done some basic due diligence on a broker or a few brokers, it's time to get some first hand data. Their website might look good, but now you want to really put them to the test…without risking a lot of money.
This is a good way to do it…
1. Read Reviews About a Broker
Keep in mind that a lot of people are going to blame their lack of trading skill on their broker. That's one big reason that over 90% of aspiring traders fail.
So always take reviews with a grain of salt.
However, look for common themes that could be objective, such as:
- Not being able to withdraw money in a timely manner
- Charging large fees or percentages for withdrawing money
- The broker charges inactivity fees
- Unresponsive support
- Complaints about being solicited for other third party services like EAs or money management
Reviews to ignore are the ones that have subjective comments about things like:
- Complaints about running stop losses (major licensed brokers won't run stops, getting stopped out a lot is usually due to setting stops too tight)
- Complaints about rude customer service
- Complaints about the broker trading against the client (another rookie complaint)
You can also talk to real traders and ask them which broker they trade with.
2. Test Their Customer Service
Next, contact a prospective broker and ask some questions. It doesn't matter what you ask them, but what you are really looking for is:
- How quickly do they get back to you?
- How good are their communication skills?
- Are they genuinely helpful, or are they using canned responses?
- How easy is it to contact them? Can you call a number and talk to someone immediately, or are you going to wait 3 days for an email?
This can give you a lot of clues on how you will be treated later. If a broker has poor service if you aren't a customer, imagine what it will be like when they already have your money.
3. Deposit and Withdraw a Small Amount of Money
Finally, when you find a broker that you like, the final test is to deposit a small amount of money.
Wait a couple of weeks after the deposit clears, then withdraw part of that money. A legit broker will allow you to withdraw your money with ease. They might charge you a small service fee, but nothing outrageous.
I've heard of some shady “brokers” charging a 20% “withdrawal fee.” Which is ridiculous of course, and the sure sign of a scam.
Any broker will make it easy to deposit money. The shady brokers will make it hard to withdraw.
Alright, that's what you should look for in a broker.
You're on a Roll!
Now that you understand what to look for in a broker, let's keep the ball rolling…