How to choose a Forex Broker

Introduction

Are you new to forex trading? In this article, we are going to learn what Forex Trading is and how you can choose the best forex broker in order to start trading right away!

Key Takeaways

  • Forex is the world’s largest market with robust Liquidity, great availability and high leverage
  • Choosing a good forex broker is the first step that can set you on the right track for success
  • There are multiple things that you need to evaluate when choosing a forex broker. Some of them are Fees & Commissions, Reputation, Financial Instruments that you will be trading, the amount that you will be investing, customer service, education material, etc.

Are you new to forex trading? In this article, we are going to learn what Forex Trading is and how you can choose the best forex broker in order to start trading right away!

“Forex” means foreign exchange. Forex trading is the trading of different countries’ currencies against each other—for example, the U.S. dollar against the Euro. Forex trading is growing in popularity because of the ease to access trading through various brokers. To start trading at the Forex Markets, one needs a Forex Broker. This article has got you covered, from the basics of understanding what forex trading is to choosing the right forex broker for your trading.

What is a Forex Broker? What does a Forex Broker do?

A Forex Broker is a financial company that provides financial services – to offer interested clients a trading platform to buy and sell foreign currencies. Once you have made yourself an account, you can invest your money in trading. The Forex Broker will then deposit your money into your brokerage account. You can now start Forex trading, which will potentially allow you to earn profits from that trade.

In Forex trading, transactions will always be between a pair of two different currencies. The sole idea behind currency trading is that currencies have to be exchanged to conduct international trade and businesses. The primary reasons for choosing Forex trading are:

  • Forex is the World’s Largest Market
  • Robust Liquidity
  • Availability
  • High Leverage

Why do you need a Forex Broker?

Any online trading and currency trade operations must be registered and conducted through a Forex broker. Trading with a broker gives you a series of advantages and eases any financial barrier while trading Forex.

  1. Intermediary: A forex broker is a legal and financial entity that facilitates you (trader) to trade on the international forex market. They also act as intermediaries between retail forex merchants and the forex market and between sellers and buyers.
  2. Simplicity: Forex brokers provide you the platform to trade various pairs of currencies online at your convenience. You do not need to have a large sum of money to start forex trading with a forex broker.
  3. Minimal trading Costs: With any form of trading, keeping the costs low is vital. With a Forex broker, the trading fees are at almost a minimum with low commission fees.
  4. Promising Profit rate: Regardless of the market trends, making a profit at Forex trading is not affected. The falling rate of one currency would mean the appreciation of another currency.
  5. Fast and efficient execution: To lock the market’s best rates, rapid implementation of trading is necessary. Fast and efficient performance is possible only with a forex broker because of their direct connection with top-tier banks.
  6. Regulated trading model: At forex trading, the brokers and the financial institutions follow stringent rules under regulatory bodies. This ensures the trader’s full protection, and you are less unlikely to lose more than what you deposit.

How do I choose a Broker?

At present, the forex trading market is the world’s largest and most competitive financial market. There are hundreds of brokers to choose from on the internet. The process of choosing a broker can be tasking, time-consuming, and challenging, especially for a beginner. To select the right broker, you need invest your time in researching whether the brokers fulfill the following criteria:

  1. The brokerage company should provide the right trading platform for all your financial goals and requirements.
  2. The Broker should have a high-security level, following regulations by financial authorities and bodies specific to their country.
  3. At forex trading, you will be charged transaction fees for every currency trade you do. It is best to look for brokers that offer affordable and cheap transaction fees.
  4. The Brokerage firm should give the traders unlimited access to demo trading accounts.
  5. The Brokerage firm should provide comprehensive trading educational resources to help traders learn and master forex trading skills. It should also include webinars, seminars, guides, video tutorials, and courses.
  6. A good broker firm should allow you to deposit money and at the same time enable hassle-free withdrawals whenever you want to.
  7. The brokerage firm should provide their clients with a robust, reliable, and round-the-clock customer/technical support system.

Which broker is best for beginners?

The simple attributes like – ease in opening an account, offering various educational tools, demo accounts, providing webinars and seminars, training, and copy-trading options make a great broker for beginners. After thorough research, we have shortlisted and compiled some of the best brokers for beginners.

  1. XM: It is one of the most reputed names in the forex trading industry and has been in the business for a long time. One of the attractive prime benefits for beginners at X.M. is the X.M. micro account – where an account can be opened for as minimum as $5. X.M. offers easy accessibility to their unlimited demo accounts. X.M. also provides a wide range of educational sections to help the traders learn continuously – a pool of informative tutorials, webinars, and seminars.
  2. AvaTrade: AvaTrade is a trusted and award-winning broker industry. It is one of the highly regulated jurisdictions and hence earns the trust of beginner traders. The investor educational tool and demo account are of top-notch Low fees, negative balance protection, a minimum deposit of $100, and rapid trade execution are attractive bonuses for beginner traders.
  3. IG.: With a high-tier jurisdiction, it has low-risk involvement for forex trading. Hence, it is a safe and trusted forex broker. I.G. provides its traders with an industry-leading educational resource. I.G. traders have access to the ultimate package of trading, research data, and competitive pricing. Its platform and software are incredibly user-friendly.
  4. Oanda: Onada has been in the trading industry for over 23 years. With that massive wealth of expertise, they are continually adapting. They remain at the top for being the most user-friendly platform. The most attractive benefit for beginner traders is their “no-minimum deposit” policy. They also provide their traders with an unlimited demo account.
  5. e-Toro: e-Toro is one of the most famous names for its easy-to-use multi-asset platform. e-Toro offers a user-friendly platform both for web users and mobile app users. They also provide copy-trading platforms for Forex and cryptocurrencies. They follow a highly regulated jurisdiction, thereby making it a low-risk broker. Users of e-Toro have access to their range of traditional research materials.

If you need more information about the best forex brokers, check out our article here. Also, if you are interested in reading a review for a specific broker, check out our Forex broker reviews.

 Trading Platform & Software

A trading platform is an integral part of Forex trading, and it is an online service provided by brokerage firms to their customers. The trading platform is a software interface granting the customers’ access/gateway as traders to the Forex market.

Trading software is a software or online application through which the trading platform is accessible to traders. The software-trading platform could be in the form of an online web-based portal or mobile application or a downloadable program for your P.C. or mobile phone. In some cases, a software-trading platform could combine any of the three forums mentioned above.

The success of trading in the forex market depends a lot on the type of trading platform and software you choose. In simple terms, a trading platform is an avenue for your entry into the forex market. Generally, it is the broker who suggests the platforms that you can use. Most of them are from third-party providers such as MetaQuotes Software.

There are many good trading platforms and software that you can try. Here are some of the best trading platforms that your preferred broker should offer:

Meta Trader 4

Meta Trader is the most common platform used by many traders. It already has a penetration rate of 85% of forex brokers worldwide. The platform started in 2005 and has been widely popular ever since. It has many unique features like 50+ indicators, multi charting, one-click trading, and nine-time frames.

Under Meta Trader 4, Pepperstone is the best forex broker. It has enhanced platform features, up to 500:1 market-leading leverage, low fees, fast execution, and award-winning and dedicated customer service.

Meta Trader 5

After releasing Meta Trader 4, the team from MetaQuotes developed Meta Trader 5 with the goal of allowing share CFD trading. And it has many other features like policies for partial filling, options for netting and hedging, 21-time frames, etc. Under Meta Trader 5, the best broker is IC Markets. It has low commissions, options for Zulu Trade on social trading, 120 global shares, an extensive CFD range, etc.

Ctrader

Ctrader is another popular trading software used by traders, and many foreign exchange brokers offer it. One of the things that make it popular is the superior analytical capabilities and 65 graphic objects with a level II pricing. You can even try automatic trading through Algo with a NET framework and C# language. And under Ctrader, FxPro is one of the best brokers.

marketsX

For a one-stop solution, MarketsX is the best platform for you. It has a wide variety of tools for trading, such as advanced chart package, insider trades, 88 technical indicators, nine types of charts, etc., to name a few.

NinjaTrader

For people from the US, you can try Ninja Trader, a software package with advanced charting forex. Many brokers recommend this software because of the easy customizing options and real-time data charts. It also has a tool called ‘Market Analyzer’ that scans changes in the forex market. And if you decide to use Ninja Trader, FXCM is one of the best Ninja Trader brokers.

eToro Trading Platform

eToro is designed specifically for trading CFDs and social trading. And compared to most of the other platforms which use third-party tools, eToro provides you with all the essential tools. And there is a copy trading feature with two flavors, CopyPortfolio and CopyTrader. It also provides you with an analysis of other trader’s performance. And with millions of traders as a social community, traders also allow you to copy their trades in real-time.

How do I choose the right broker?

One prime criterion to consider before choosing a broker is that your forex broker is the connecting bridge between you, your money, and your brokerage account. It is crucial to choose your online broker cautiously. Nevertheless, before choosing a broker, you need to have some clear points and vision for your trading journey. Addressing the following issues will help you filter out the kind of broker best suited for your forex trading plan.

  1. Money: The foremost step before getting on to an online trading platform is to create a budget for your trading venture. That includes setting out an amount on how much to invest in forex trading and your goals. It also consists of the amount you are willing to pay for the broker fee.
  2. Type of investment: Next, you will have to figure out the kind of investment you are interested in, the currency pair you want to trade-in, and the leverage you would wish to have. Once you have that figured out, it will help you filter your search for the kind of broker that best delivers the services you are looking for.
  3. Internet Search and shortlist: Now that you have your budget plan and the kind of investment sorted, you will now have to search and filter out from Forex brokers’ comprehensive options from the internet. You have to read the reviews from other traders and shortlist a few of the best-reviewed and trusted brokers.
  4. Research: After you have shortlisted the broker list, you will have to analyze each broker thoroughly. Each forex broker has its advantages and limitations – so going through their policies, services, and trading models will help you have a clearer idea of which broker to select.

What is a reasonable brokerage fee?

Brokerage fees are the fee charges of the broker for the services they provide. There is no defined reasonable brokerage fee as brokerage fee varies from broker to broker and depends on its services. However, an overall overview and charge rates of brokerage fee are highlighted below:

  1. Trading fees: The brokerage fee the traders pay to make a trade is the trading fee. What you pay for is a spread, a commission, or a financing rate. The reasonable rate for trading fees falls in the range of $2 – $25.

A spread is the difference between what amount you can buy a currency pair for and what amount you can sell a currency pair for. For example, if you are trading for Euro and U.S. dollar as EUR/USD 1.3600/1.3605. Here, 1.3600 is what the broker will give you if you wish to sell the currency pair. 1.3605 is what the broker will charge if you want to purchase the currency pair. The difference between the purchase and sell is .0005, or five pips.

A commission is a flat rate fee on every trade done by the trader. Its charges are based on the amount traded for, or it can be a fixed rate for every trade. The average cost is usually between $1.5 – $15 per 1 lot of trading.

The financing rate (also known as rollover rate or overnight rate) is the interest that adds when the investor holds their spot currency for over more than 24 hours. The financing rates usually range from 0.95% – 3.5%.

  1. Additional Non-trading fees: These charges incur for activities at your brokerage account. For example, depositing money, quarterly minimum charges, withdrawing money the brokerage account, or sometimes charges can apply for not trading or inactivity at your brokerage account. Most reputed brokers do not charge for deposits and withdrawals, but they charge for inactivity in the account. Approximately $10 – $15 charges apply per month after 1 or 2 years of inactivity.

Top Considerations prior choosing a Forex Broker

a) Minimum Deposit: Minimum deposit refers to the amount you will be investing at the Forex broker to start trading. It is significant for a beginner, as you can begin trading investing a low amount initially. Once you have learned how forex works, you can increase the investment. Most forex brokers go on an average of $100, but some brokers offer mini accounts where you can start trading by depositing a minimum amount of $5-$10.

b) Max Leverage: Leverage means an interest-free loan provided by a broker. When choosing a broker, it is vital to look for a broker that offers high leverage. For example, Leverage of 1:1 would mean that the trader is trading using only the funds he has deposited. A leverage of 1:1000 would mean the trader is trading at a volume of 1000 times more than what the trader owns or has deposited.

c) Fees: It is always better to choose a broker that lists its fees on their website. It creates a transparent and professional business entity and gives the traders an idea of how much they should be allocating their funds for costs.

d) Customer Service: Every trader and mainly a beginner, would need guidance to achieve their trading goals. When choosing a broker, it is crucial to see if they are providing round-the-clock customer services. Most good broker companies offer 24*6 customer support services.

e) Security: A good broker should be able to provide a secure trading environment for all its clients along with an assurance of security for their funds.

f) Trading Dominance Score: Many international businesses manage and handle multiple currencies. But the U.S. dollar has the highest dominance score in trading as it is the most traded currency globally. A good broker curate profitable currency pairs according to the trading dominance score of the currency.

g) Regulations: When choosing a broker to work with, you need to check if a U.S. authority regulates them. Registration of a U.S. broker with the U.S. Commodity Futures Trading Commission (CFTC) and retail Forex dealer is necessary. It also must be a member of the NFA (National Futures Association). Regulation by an official regulator protects both the broker and trader and ensures brokerage operations’ high integrity.

h) Safety of Funds: Most good and reputed brokers will keep the investor’s funds at reliable banks or financial companies. When choosing a broker, it is good to consider those brokers that allow executing a withdrawal request anytime.

The bottom line is that you need a well-regulated online broker to start your forex trading. The broker you choose should also provide a user-friendly trading platform where your funds are safe and secure, offering a minimum deposit account with tight spread and fees. Finding a broker and choosing a broker is a time-consuming task, but the time and attention devoted can increase investors’ eventual odds of success in the competitive forex market.

Summary

The bottom line is that you need a well-regulated online broker to start your forex trading. The broker you choose should also provide a user-friendly trading platform where your funds are safe and secure, offering a minimum deposit account with tight spread and fees. Finding a broker and choosing a broker is a time-consuming task, but the time and attention devoted can increase investors’ eventual odds of success in the competitive forex market.

Sources

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