Choosing a forex broker is essentially the biggest trade you’ll ever make in your forex career. You’re trusting all your trading capital to these people. Below you’ll find some steps for how to pick a forex broker that’s right for you. You’ll also learn how to test that broker out, what you can and can’t trust, and things to consider before handing over your money.
The forex market can be lucrative, but with the wrong broker, it can be a nightmare.
A lot more is covered in this article with further details on these points below, but here is a quick summary of what to look for when choosing a forex broker.
- Regulated by one or more country’s financial authority.
- Tight spreads and low fees.
- No re-quotes.
- Scalping allowed (if day trading).
- Helpful customer support.
- Acceptable trading platform.
- Allows micro lot trading (useful for nearly all traders).
Here is a quick summary of how to determine if a forex broker is legitimate, with minimal risk.
- Try out a demo account, read the legal documents, and verify they are regulated before opening an account.
- If the experience seems ok, proceed with opening an account with a SMALL initial deposit.
- Make several trades with small position sizing, risking very little.
- Contact customer support about a random question to see how prompt and helpful they are.
- Make a withdrawal for a portion of your funds.
- If all goes smoothly, deposit more funds to trade with.
How to Pick a Forex Broker – ask yourself the right questions
Have an understanding of what you need from your broker. This narrows the field of brokers to a handful that suit your needs. Consider your resources, trading style, and how you move your money around.
- If you have under $10,000, only look for brokers that offer micro (1K lot or 0.01 lot) trading. This is not a major concern these days as most brokers offer micro lot trading, yet I still come across a few that have a minimum trade size of 10,000 units (mini lots) or more. This isn’t ideal for smaller accounts. You want to be able to fine-tune your position size, and for that you need to be able to trade in micro lots.
- Different brokers will also have different deposit minimums. This is an easy way to narrow down brokers based on the funds you have available for trading.
- Some brokers don’t allow scalping. If you want to scalp, make sure the broker allows it. If unsure, email the broker before opening a demo account. If you’re day trading, you want a broker that allows scalping because it is possible that even if you don’t intend it, some of your trades may be brief and considered scalps.
I have come across brokers that consider any trade under 2 minutes a scalp, or trades where the exit occurs within 5 pips of the entry point. Again, these vary by broker. Most brokers have it written on their Type of Accounts page whether they allow scalping or not. If you’re going to swing trade this isn’t an issue.
- If you’re executing a significant number of trades (or small pip movement trades), get a broker that offers tight spreads, as the spread is a cost. Ask yourself how many trades you expect to do per day, per week, or per month. The more trades you do, the more spreads you’ll pay. If you only do the occasional longer-term trade the spread isn’t a significant factor.
If you want to trade a lot, and capture small gains, open an ECN account with an ECN broker. ECN brokers have the tightest spreads but charge a small commission on each trade. Since the commission is less than the spread, day traders tend to benefit from using an ECN account. The spread offered by each broker varies; all ECN brokers aren’t equal. Shop around for the best deal, heeding the additional criteria mentioned in this article.
- You’ll also want to consider how you’re going to fund and withdraw from the account. This is a big one…especially the withdrawal aspect as this is often where traders run into problems. Learn how deposits and withdrawals are made (methods), the processing time, and if there are any limits imposed. A common limit is that if you deposit by credit card you can only withdraw (via credit card) the same amount as the initial deposit to that card. Therefore, you may wish to use a broker that will mail checks, wire funds or offers payment services such as PayPal or Skrill, or one of the many other web payment services out there. Ideally, you need a broker that provides a deposit and withdrawal method that works for your personal circumstance. Most brokers now also offer crypto withdrawals and deposits.
How to Pick a Forex Broker – does your broker offer this?
Here are a few things that you want in a broker.
ECN forex brokers charge you a commission on each trade, but generally provide much lower spreads than brokers that don’t charge a commission.
With some ECN brokers, the spread is almost zero. Paying the commission is typically worth it to save one pip or more on the spread. For longer-term traders, this isn’t a big deal. For scalpers and day traders, an ECN broker with a typical spread near zero (0.1 or 0.2 pips on major pairs) is highly advantageous.
- You can calculate whether an ECN account is better than paying a higher spread. In the EURUSD, one pip is worth $10 when trading a standard lot (100,000 units of currency). If a broker offers a one pip spread, but no commission, it basically costs $10 to enter a trade. If an ECN broker offers a 0.2 pip spread, plus a $2.5 commission per 100K of currency, this is equivalent to $4.50 ((0.2 x $10) + $2.5). The ECN broker is much cheaper, even with the commission.
There are also STP accounts. These are accounts that offer instant execution, like ECN accounts, except STP accounts don’t typically have commissions. Instead, the spread is slightly higher than an ECN account but lower than a typical forex account. STP accounts are for more active traders, such as swing traders, that don’t want to pay a commission.
Because the conditions are more favorable in ECN and STP accounts, the deposit minimum is typically higher than for a basic forex account. Expect to deposit at least $1000, often $2000+, to open an STP or ECN account. Not always, but with some brokers.
The accounts you can open for $50 or $100, or even $1000 or less, often have the worst trading conditions (highest spreads and day trading abilities may be limited). Not only are you undercapitalized, but you’re trading at a disadvantage compared to better-capitalized traders. If a broker does let you open an ECN account with less than $1,000, typically the commissions will be higher than if you deposit more. See: How Much Capital You Need Trade Forex.
It’s highly recommended all traders, day or swing, use an ECN or STP account. ECN is best for day traders, while swing traders could use an STP or ECN account. Opening a basic account, which usually has the highest spread, is just throwing money away unnecessarily.
Few or No Re-quotes
A re-quote is when you place an order and the price changes and you get “re-quoted”. A message pops up asking you if you want to proceed at the re-quoted price. This is a big (and bad) deal for day traders; the delay can ruin your entry and the trade, or keep you in a losing position longer than you need to be, resulting in a bigger loss. And it is annoying!
Also, constant re-quotes draw the published quotes and spread into question. If a broker is showing a very tight spread, but constantly re-quotes you, then they’re not actually giving you that spread even though they’re advertising it. Therefore, you want a broker that offers a competitive spread and actually lets you trade at the rate you see.
ECN and STP accounts don’t have re-quotes, you’re simply filled at the prevailing rate when your order gets to the market.
Safety of Funds
A major concern for traders is being able to get their money out of their accounts. It doesn’t matter if you make a killing in the markets, if your broker scams you, or your money gets caught up somewhere, it was all for nothing. Regulated brokers are under more scrutiny than their unregulated counterparts, so choose regulated brokers over the alternative.
Regulated brokers can still be crap though. Test the broker out by depositing some funds and attempting a withdrawal. If all is smooth, that’s a good sign. This process is discussed in more detail below.
If you need help with something, your broker should be there for you. To make sure they are by sending a few emails to customer service asking about something. This is just to make sure they’re listening to you and they seem to know what they’re talking about.
Also, make sure the broker has live chat or phone support so you have quick access to help if something goes wrong and you need to speak with someone quickly. Test out customer support by sending emails and trying out chat support before you make a deposit. Don’t be shy about this. You really need to test them. The last thing you want is to open an account and then get no response to your queries and questions.
The trading platform is how we make trades. Nearly every forex broker offers MetaTrader 4 or MetaTrader 5 as an option for a trading platform. This platform serves the purposes of most traders just fine.
If the broker doesn’t offer MT4 or MT5 then you will want to try out the platform and make sure it does what you need, easily.
A trading platform will also provide you with charts and real-time price data for trading.
I place my trades inside the trading platform (MT4), but I prefer to use TradingView charts. I find them much easier to analyze and mark with comments and lines as I trade compared to MT4.
MT4 is fine for charting if you only have one monitor, but if you have more than one, you may find the charts on TradingView easier to look at. But that is a personal preference. Forex charts are free inside MT4 as the data feed is provided by your broker.
How to Pick a Forex Broker – don’t always trust reviews or other people’s opinions
While reading about forex brokers in forums, on websites, and in reviews is of value, it can also paint an inaccurate picture. Brokers (employees, paid writers, etc) may post their own reviews, for example. Or traders may bash brokers simply because the trader lost money trading and didn’t understand what they were doing. Since about 95% of short-term traders lose money, it’s no wonder so many traders blame their broker. It’s much easier to blame someone else than accept personal responsibility. Take reviews with a grain of salt.
The best way to test a broker is to read what you can on the broker’s website, to make sure they offer what you need. Then, follow the steps below to “test out” the broker. Just like trading, avoid taking shortcuts. Do your own due diligence rather than blindly trusting someone else’s opinion. Reviews and information on a particular broker may be a starting point, but you need to test that broker for yourself.
How to Pick a Forex Broker – personally “test out” the broker(s) you choose
Open a demo account with brokers you think you’ll like–brokers that offer what you personally require. Demo accounts aren’t exactly like live trading, but you’ll get an idea of the spreads, customer support, and whether you like the platform. If you like the demo account and everything else is in-line (see sections above) then proceed to open a live account, but follow these steps in doing so:
- Be sure to read all the fine print when opening an account. It’s a lot of legal jargon, but if you don’t read it there may be surprises down the road.
- Always make a small initial deposit with a new broker. Don’t deposit all your capital at once, especially if it is a large sum.
- Make several trades. These should be very small orders, just to test out the software and see how quickly orders go through. This step is not actually about making money. Just place a few orders with very tight stop losses and targets to try things out. This process shouldn’t cost you more than several dollars.
- Test out Customer Support. Email them. Chat with them. Phone them. Ask them something to make sure they are actually there to help.
- Make a withdrawal for a portion of the funds you have in the account.
- If everything goes smoothly, begin trading regularly, based on your Trading Plan.
- Deposit more funds once you feel comfortable that the deposit and withdrawal process, and the trading conditions and platform, are reliable.
Nothing is limiting you to using only one broker. Consider separating your funds between two or more brokers if you have a larger amount of capital. Use one broker for swing trading and the other for day trading, as an example.
Each broker is different, so if I like what I see and read about a broker I’ll try them out with a small amount and slowly add more capital, up to my full amount, if things go smoothly. This process can take months sometimes.
Choosing a Forex Broker – Don’t Take the “Bonus”
While a bonus may seem nice upfront “Deposit $5000 and get $1000 free in bonus capital!” don’t be fooled. Accepting a bonus will complicate things down the road when you go to withdraw funds. Nothing is really free about these bonuses.
The broker isn’t going to give you free money unless they think they can make it back. What happens is, you now have a $6000 balance showing in your account, and after some profitable trading your account is now at $6500. You decide to withdraw $500. But your broker says you can’t because $1000 in the account is theirs (until you have met the specific trading requirements that will make it yours).
Since it’s possible you could lose all the money in your account, they don’t let you withdraw any, because they want to protect their $1000. There’s always a catch; brokers aren’t giving away free money.
If a broker is offering free money, send a note to the broker when you open your account that you don’t want a bonus.
For more details on the type of issues you’re likely to run into when taking a forex bonus, read Don’t Take the Deposit Bonus From a Forex Broker.
Some Forex Brokers I Like
Here are some forex brokers I have used within the past few years, liked, and had no issue with. Again, do your own due diligence.
FXCC – Lowest EURUSD spread and no commissions (not in all countries), regulated. Non-US.
Interactive Brokers – Low spreads and commissions. Available to US residents but it can be a difficult process getting the forex account open. Highly Regulated.
FXOpen – Low spreads and commissions. Commissions get cheaper with more capital in the account. Regulated. Non-US.
VantageMarkets – Low spreads and commissions. Commissions get cheaper with more capital in the account. Non-US. Regulated. (I was with them when they were Vantage FX. Things have changed bit. Not sure how they are now).
The above are all good for day trading.
Oanda – Option for US traders. High spreads and/or commissions. If you are in the US and know of a good forex broker with low speeds and commissions, drop a note in the comments.
With swing trading, the spread and commissions don’t matter quite as much. Therefore, you have a lot more flexibility for brokers with swing trading. Go through the above steps with a broker of your choosing.
Final Word on Choosing a Forex Broker
Don’t take the decision lightly on which broker to use. Test out as many as it takes to find one (or a few) you like.
Do your research online, but read reviews with some skepticism. Disgruntled traders may bash a broker because they lost money, but that isn’t the broker’s fault. Positive reviews may also be written by employees of the brokerage or paid writers. The best approach is to test a broker for yourself.
Start with a demo account, and email support (multiple times) to see how accessible they are. If all goes well, deposit a fraction of your trading capital. Make some live trades and attempt a withdrawal. If the experience is positive, continue to add capital, repeating the process above. These withdrawals, and depositing in stages, may have some costs, but knowing you can access your money with ease is worth the price.
Ideally, the broker should have offices in a major global financial center and be regulated.
Finally, never take a deposit bonus. As traders, we make our own money and grow our accounts the proper way. Accepting a bonus only complicates things down the road.
By Cory Mitchell
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.