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If you want to trade currency, or foreign exchange, you need to find a Forex broker that will give you access to a trading platform on which you can buy and sell foreign currencies.
There are plenty of Forex brokers out there (see a list on our Broker Listing page), so how do you pick the one that’s right for you? Here are 9 things you should consider when making your choice.
- Regulation
First and foremost, make sure the broker is regulated. You don’t want to put your money into a company that isn’t legitimate.
In the UK, the regulatory bodies are the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). In the US, it’s the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC). Brokers based in other countries such as Australia, Canada, Japan and of course in the EU will be regulated by similar bodies.
Beware of brokers based in small countries or tax havens where there is little to no regulatory supervision.
- Check out the website
If the company’s website doesn’t look professional and reliable then it doesn’t bode well for the service they offer. If it looks like it was knocked up by an amateur, on the cheap, then that’s a warning sign that the broker has put it up in a hurry in order to scam people. If it has typos or uses clumsy language with grammatical mistakes, that’s another red flag.
You’re looking for a website that looks good, that is laid out clearly and gives you the information you need, and that gives the impression that the company takes the time, and spends the money, to maintain it properly.
Of course, sometimes scam artists have good websites too, so it’s no guarantee of legitimacy – but a bad website almost certainly points to scammers. Or at least people so incompetent you wouldn’t want them looking after your money!
- Transaction Costs
Brokers need to make money and they do that by making you pay every time you make a trade. Sometimes they do this with a commission, usually a percentage of the spread. Sometimes they don’t charge a commission but will have a wider spread.
The spread is the difference between the bid and ask price of a currency pair. For example, a three pip spread means that when you buy some currency, the selling price is going to be three pips lower. So the wider the spread, the harder it is to make a profit.
You need to compare the commissions and spreads of different brokers when making your choice.
- Deposits and Withdrawals
How easy is it to deposit funds into your brokerage account, and withdraw funds from it? A good forex broker will make both actions easy. If you have to jump through a lot of hoops to get your money back from the broker, it’s not a good sign.
- Currency Pairs Offered
While all brokers should trade the major currency pairs such as USD/JPY, EUR/USD and GBP/USD, there are many more combinations, so make sure the broker offers the ones you like to trade.
- Deposit and Leverage
Brokers will have a minimum deposit that you need to put into your account before you can start trading. It can be as low as £50 because the buying power is increased by using leverage.
Leverage is a loan provided by the broker to enable you to trade with more money than your deposit.
For example, leverage of 50:1 means that if your account holds £1,000, you can hold a position valued at $50,000.
The higher the leverage offered, the more your profits will be enhanced – but remember that if a trade doesn’t go your way then leverage magnifies your losses as well.
- Trading Platform
You need to look at the broker’s trading platform and make sure it’s user-friendly and stable. After all, you’ll be very frustrated if you find yourself struggling to set up a trade because you can’t figure out which button to click on, or worse – if the platform suddenly stops working.
You also need to look at the features the trading platform offers. You’re going to want a news feed, some analysis tools and trading alerts. Most brokers will let you set up a demo account to try out the trading platform before you open and fund your account, so take advantage of this.
- Customer Service
Make sure you can contact the broker easily when you have a problem. Since Forex trading is a 24/7 operation, so the customer service should be available all the time. Try phoning up their customer service to see how long you have to wait in a queue (listening to terrible music) before they respond. When they do answer, ask some questions about the services they offer: spreads, leverage, regulations and so on. Then you can gauge whether they know what they are talking about.
Some brokers have a live chat feature on their website. Try that out, and see if you get a response, and whether your questions are answered by a real person – not just a robot!
- Read Reviews
Before making your final decision about whether to use a broker, search out reviews online. Reviews by legitimate financial publications or websites are particularly valuable, because they are less likely to be “fake” reviews paid for by the company.
You can compare respected brokers on our Broker Listing page.
