How to choose the Best Forex Brokers in the world ?
How to choose the Best Forex Brokers Online ?
There are a large number of forex brokers in the retail forex market these days, each touting its services as the best in the entire market. It can be a daunting task to sort out between them seeking those that are best suited to your needs, however, as usual; we have worked to simplify your task by reviewing some of the most reliable brokers in the market.
Here we would like to explain the importance of the various criteria according to which you can screen the brokers we have reviewed, and make your choices. Due to the vast diversity of options, it is not possible to speak of a broker who is perfect for all kinds of traders. Instead, you should carefully consider your own expectations from trading, and compare that with what is offered by the broker, and choose the one that is best suited to your needs.
Choose the TOP Forex Brokers Right Now!
Security - Regulation
Without a doubt, the most important thing your broker must have is proof of regulation.
What is the point of opening a forex account if the funds we deposit will be unsafe with the broker, or worse yet, will be stolen and misappropriated? What is the logic of studying analysis and currency fundamentals if the profits that we make are pilfered by shameless crooks, or squandered by irresponsible individuals who cannot even manage themselves decently? If you choose to do business with an unregulated broker, you are opening yourself up to a whole slew of potential problems. If you have to dispute a trade or action facilitated by the broker, who do you turn to? If they are unregulated, you are going to have very little if any legal protection from fraud. Or if the broker goes bankrupt, will you lose your deposit? Thus, the first necessity for the right broker must be the safe and reliable track record of the firm. On the other hand, it is clear that the retail trader possesses neither the tools, the time, nor the expertise for determining which of the brokers are reliable, and which are not. Fortunately, the regulatory authorities in this country and in other financial centers of the world do their best for screening and weeding out the unreliable ones among the many decent firms. Our best course is to ensure that the broker we choose is a member of NFA, and is registered with CFTC in the US, and with other relevant authorities in other parts of the world.
Of course, simply being regulated isn’t enough. You need to have a broker that is regulated in a country where the law is followed and legal protection is strong. Needless to say, this is absolute folly and very reckless for a trader to deposit money at this broker, no matter how tight their spreads were. The fact is that tight spreads won’t do you much good if you cannot get your money back! This could be the case either by fraud, as there is very little legal protection, or by an overthrowof the government. As a general rule, if you don’t feel safe visiting the country, depositing your money there isn’t a good idea either!And last but not least, to make the task even easier for you, we have reviewed some of what we believe to be the best and most reliable firms in the market.
Initial Deposit
Unavoidably, the second most important variable in our equation for comparing brokers is the initial deposit requirement. Many traders prefer to begin their careers by risking very small amounts which leads them to seek the broker offering the lowest initial deposit requirement naturally. This reasoning certainly has its merits; however, the initial deposit requirement should in fact be one of the last considerations in choosing the best broker for you, unless you really have a very small amount of capital that you want to risk for forex trading.
A serious broker offering excellent services may choose to keep the initial deposit requirement relatively high (around $500, for example) in order to ensure that the clients are serious about their trading practices. In addition, forex is usually so volatile that a less than optimally capitalized account is highly likely to be wiped out during the ordinary fluctuations in the market. We have already discussed the difficulties associated with undercapitalization, and those who have read that article should have little trouble in understanding the reasons behind our deemphasizing the importance of initial deposit requirements.
It is self-evident that a beginning trader should only risk the amount that he can comfortably afford to lose. In that sense, the initial deposit requirement of the broker should never be more than what we can afford. On the other hand, beginning our career with a pittance like $10-50, and trading at 10:1 leverage cannot be considered a wise choice. Trading with such small sums is similar to trading in a demo account, and the emotional lessons gained will probably be of little value.
Deposits and Withdrawals
It is not a good idea to trade forex if you cannot withdraw your earnings with ease. Conversely, the broker must facilitate your termination of the account in case that you’re not entirely satisfied with the services offered, regardless of the reasons. This should be non-negotiable: since the broker is only the custodian of your funds, there’s no justification for any unreasonable delays or excuses when you make the request to withdraw your funds.
Similarly, you, as the client, should have no headaches at all when depositing funds with the broker. Come to think of it: if the broker is not even capable of ensuring that your deposit process is smooth, how likely is he to guarantee a painless and satisfactory trading experience for you?
Spreads
Spreads are extremely important for forex traders, seasoned, or novice. Since the broker usually receives the compensation for its services by widening the bid-ask spread beyond the quoted values in the wholesale interbank market, a wide bid-ask spread represents a larger amount of money leaving your pockets, and entering those of the broker’s. You pay this fee regardless of the profit or loss you make with your trade: so there’s always good sense in ensuring that you choose the broker which offers one of the more competitive spreads in the market. Sometimes it may be advisable to open an account with a broker that charges slightly higher spreads in exchange for the safety offered by its long history and track record. But even in that case, a spread beyond three for the EURUSD pair, for example, is not a very good idea.
Margin Requirement - Leverage
Margin requirement and leverage ratios are the second most important aspect that must be considered during the choice of the broker. For the beginner, the lower the leverage the better. Since higher leverage is only advisable for traders with a proven track record of profits and success, the beginner should be uninterested in the maximum leverage offered by a broker. Instead, since he must be allowed to get used to leverage on a step-by-step basis, the minimum leverage available is far more useful as a criterion.
For an experienced trader, evaluating the value of a high leverage options can be a bit more different. Since, by definition, successful traders use highly divergent techniques in their trades, there is no general rule for determining the optimal leverage ratio for a seasoned trader. However, for traders who plan to hold a position for long term, 10-to-1 may well be the highest sensible value.
In short, beginners should choose brokers that offer the lowest minimum leverage option, and the greatest customizability. With such a setup, it is possible to increase leverage gradually, in tandem with our improving and developing skills.
Trading Platform
In online forex trading, almost all activity is conducted through the trading software. Indeed, for a safe trading experience, this is also a must: in order to ensure that the broker doesn’t temper with your trades, and misquote currency prices to you, you should always seek those offers which allow the greatest automation, and reduce human interference to the lowest level possible. This is only possible with a successfully implemented trading platform.
What should you look for when choosing the trading platform? Does it offer a wide array of charting tools and technical indicators for evaluating the price action? What about financial news? Is the interface clean and uncluttered? Since you may spend a long time looking at the graphics and examining charts, is the appearance of the platform physically pleasing and relaxing?
Are the servers of the broker reliable? Do you have connection problems in the middle of something important while using the demo account? How wide are the spreads during market volatility and news releases? Is slippage and misquoting a problem? Can you customize the platform to suit your trading needs and language requirements? Does the platform receive frequent updates and bug fixes?
These are the most basic issues related to the trading platform. Needless to say, an advanced, easy-to-use, and uncomplicated trading platform can make the task of the beginner a lot easier. But even the seasoned traders will find that using a well-crafted, well-maintained forex software can greatly reduce the element of stress during trading.
How to Choose the Right Trading Platforms for You
While there are literally hundreds of trading platforms to choose from, there are some major ones that you will see time and time again. Without a doubt, the most popular one is MetaTrader 4. There is a newer MetaTrader 5 out there as well which some traders prefer. The MT4 platform allows traders to import trading robots, hundreds of free indicators that are readily available on the Internet, and many more features. It is offered for free, and it estimated to facilitate over 85% of the retail trades in the forex market. Because of this, there is a real strong chance that you will either be using it, or at least have the opportunity to use it with whatever broker you choose.
In reality, picking a trading platform is going to be a very personal choice, but by far the best way to make that decision is to try demo accounts in that platform. You will find that a lot of the same basic features are found in all of them, and it is graphically representations and indicators that tend to make the difference with these different platforms. As a general rule, if a demo isn’t available it’s not worth dealing with.
Broker Types
There are two main types of brokers that you can deal with when trading forex
. The first model, the dealing desk is sometimes called a Market Maker. This dealer will often take the other side of your trade, as they will first try to match your order with another customer, but will be the other side of the trade if necessary. This type of dealer typically will make their money based upon the spread of the trade. For example, there might be a 2 pip spread in the EUR/JPY market, but the broker only offers it as a 4 pip spread, thus pocketing 2 pips for facilitating your trade. As a general rule, there are no other costs involved in trading with this broker. Of course, there is potential for the dealer to manipulate the market, and slip you on fills, but these practices are becoming more and more uncommon as the markets mature, and the regulatory bodies are very strict on these types of dealers. Again, another reason to trade with a dealer based in an industrialized country.
The other type of broker is an actual true broker. The ECN, or Electronic Communications Network, allows trader to match orders with other traders electronically. The broker will not take the other side of the trade. So for example, if you are bidding the EUR/USD at 1.4056, and there is no seller there, you simply won’t get filled as there is nobody to sell it to you at that price. (This is rare, but it can happen.) Many people say that the ECN has no interest in the results of your trades, but this is not true. In fact, the ECN wants you to do well so that you will continue to trade as they make their money off of the commissions they charge for each trade. Because of this there is no markup in the spread to compensate the broker. You typically will see tighter spreads, but there will be an added transaction cost in the form of a commission for facilitating the trade.
The other type of broker is an actual true broker. The ECN, or Electronic Communications Network, allows trader to match orders with other traders electronically. The broker will not take the other side of the trade. So for example, if you are bidding the EUR/USD at 1.4056, and there is no seller there, you simply won’t get filled as there is nobody to sell it to you at that price. (This is rare, but it can happen.) Many people say that the ECN has no interest in the results of your trades, but this is not true. In fact, the ECN wants you to do well so that you will continue to trade as they make their money off of the commissions they charge for each trade. Because of this there is no markup in the spread to compensate the broker. You typically will see tighter spreads, but there will be an added transaction cost in the form of a commission for facilitating the trade.
Let us consider the following example:
You see an opportunity in the AUD/USD pair, and you believe it is going to rise in value. Because of this, you are ready to enter a long position. If you had two separate brokers, you could have the following two scenarios possible:
Traditional Dealer:
You buy AUD/USD with a 5 pip spread, and thus start out the position 5 pips down. However, the total cost is 5 pips to place this trade. So in order to make money, you need the market to move at least 5.1 pips in your favor. Some dealers offer variable spreads, so this could change in the middle of the trade as liquidity increases or decreases, but in order to keep things simple, we assume that the spread is a fixed one. If you are trading at $1 a pip, this trade costs you $5 to do. If you are trading standard lots, it costs $50. As you can see, the trade size makes a massive difference.
ECN:
In the same set up, you see that the ECN broker is offering the same rates, but with only a 1.5 pip spread. However, with this broker you are required to pay $2.50 for each trade. Remember, when you open the trade that is one trade. When you close it that is another. So when they say per turn, you simply should double the amount to understand what the trade will cost you.
Much like the dealer situation, the value in this spread will depend on the size of the trade. For example, if you are trading at $1 a pip like the first example above, the trade will cost you $1.50 for the spread difference, $2.50 to open it, and $2.50 to close it. This is a total of $6.50 for the total position, which is actually more expensive than the dealer. However, if you compare it to the trade above that involved the standard sized lot, the cost is $15 for the spread, $2.50 to open the trade, and $2.50 to close the trade. This totals $20, saving you $30 over the dealer’s price!
As you can see, it all comes down to the trading size you will be trading.
Margin can vary from broker to broker, and country to country. As of the time of this writing the US had recently brought down the allowable leverage for its citizens to trade. Because of this, a US broker will only allow 50 to 1 leverage, which means you need to place 2% of the value of the trade for margin. For less liquid trades, it has been dropped down to 20%, meaning a 5% margin amount is necessary. Contrast that with countries around the world that allow unlimited leverage, and you can see it as high as 700 to 1! Because of this, margin requirements can very drastically, depending on your broker.
Account Types
There are many different types of accounts you can get at the various brokers available to you. Some of the most common include standard, mini, micro, and demo. The differences all basically come down to the trading size, which can also vary from broker to broker. For example, a standard account might mean that you have to trade full lots or more on your trades at one broker, but at another broker it may mean that you simply have the ability to trade them, but can trade much smaller amounts.
The most common difference is the spread that brokers will charge you. Under most circumstances, there will be lower spreads for the larger account. (When there is one.) Another common difference is that some brokers will offer value-added services for larger accounts as well, which can also be called Platinum, Premium, or Gold. Make sure to see if there are any differences at the broker of your choice listed on the website before opening your account.
The most common difference is the spread that brokers will charge you. Under most circumstances, there will be lower spreads for the larger account. (When there is one.) Another common difference is that some brokers will offer value-added services for larger accounts as well, which can also be called Platinum, Premium, or Gold. Make sure to see if there are any differences at the broker of your choice listed on the website before opening your account.
Some brokers offer a large number of account packages. Others choose to offer one package with many customization options. In general, the number of account packages is not very important, provided that the broker offers a highly customizable main offer with adjustable leverage and margin requirements suitable to the needs of clients from different backgrounds and experience levels.
Currencies Offered
Finally, it is a good idea to choose a broker that offers the widest array of tradable currencies. In evaluating the currency pairs offered, you should try to make sure that different currency pairs of different classifications are available, instead of concentrating on just the number of the total offers. For example, if a broker offers three pairs of major economic powers, three pairs of emerging nations with floating currencies, three of fixed or pegged currencies, and three rare pairs (like the Saudi Riyal, or the Chinese Yuan), the offer is much better than that of a firm which offers 12 pairs all of which belong to major, developed economies.
Such details are especially important for the experienced trader, but the beginner can focus on the more important, basic aspects of the broker’s package before worrying about the intricacies of the various currency pairs on offer.
Customer Service
Customer service is paramount when it comes to dealing with a broker. Remember, they need you not the other way around. If you do not see a clear route to contact someone at the brokerage on the website, this should be a huge red flag when it comes to using them. The professional firms will have several different ways to contact them including phone, email, live chat, and many others. If you ever run into a problem, the last thing you want to do is have an issue getting a hold of your broker in order to fix it. If the broker only has limited hours of customer service, that is also a sign that bad things could come of the business relationship.
Software is prone to generating errors. This has always been the case, and will remain so for the foreseeable future. When there are problems with the trading software, or delays, or issues with deposits and withdrawals, you will need to seek the aid of the customer service.
A friendly, patient, and helpful customer service can be profit multiplier if used correctly. In those cases where the customer service is run by individuals with trading experience and understanding of economics and analysis, you can even hasten the learning process by asking questions.
Before opening your account, it is perhaps a good idea to read our reviews on customer service of various brokers to receive a preliminary impression of how competent the people are. While we cannot just pick a broker because its customer service department is professional, success in this department is certainly a promising sign for overall competence.
Additional Services
Value-added services are starting to become the norm as the competition between forex dealers heats up. The competition dictates that many of them are offering analysis,news,signals,and even education for free. Some will ask that you deposit a certain amount before offering all of these features, but they are starting to become a regular feature of dealers. Some of these technical analysts are even well-known, such as Kathy Lien and Boris Schlossberg from GFT. Brokers that are ECNs typically will offer less, as the account size needed to trade those types of accounts normally suggests that the trader is a little more sophisticated. However, even in these firms there is a bit of a change in that thinking.
Choose the TOP Forex Brokers Right Now.
Start Your Forex Trading Journey!
Conclusion
If you have confidence in your forex broker, you will be able to devote more time and attention to analysis and developing forex strategies. A bit of research before committing to a broker goes a long way, and can increase an investor's odds of success in the competitive forex market.
As you can see, there is a lot to think about when choosing a broker. However, by using these simple guidelines, you should be able to narrow down the list quite a bit. A lot of it comes down to personal preference as well, and what your trading needs and wants are.
We have made every effort to make sure that you find the most realistic assessment of each firm’s offerings, so that you can form your independent judgment on their suitability your purposes. Regardless of your decision, we wish you the best luck in your new career.
As you can see, there is a lot to think about when choosing a broker. However, by using these simple guidelines, you should be able to narrow down the list quite a bit. A lot of it comes down to personal preference as well, and what your trading needs and wants are.
We have made every effort to make sure that you find the most realistic assessment of each firm’s offerings, so that you can form your independent judgment on their suitability your purposes. Regardless of your decision, we wish you the best luck in your new career.
