How to Choose a Forex Broker

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If you’re looking for a large and liquid financial market, the forex market trades trillions of dollars in volume every day. FX brokers support trading services in the market by providing platforms for traders to buy and sell forex. In this guide, Benzinga explores how to go about choosing a forex broker and reviews key considerations, including regulatory compliance, trading costs, trading platforms, customer support, and trading tools.

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Disclosure: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% to 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

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What is a Forex Broker?

A forex broker acts as a financial intermediary that connects traders to currency markets. Brokers facilitate price discovery and market liquidity while providing a trading platform for trading execution. A reputable forex broker can support you with research, resources and trading capabilities while meeting relevant regulatory requirements. 

11 Things to Look for When Choosing a Forex Broker

To access a liquid forex order book, you’ll trade through a forex broker. Here are some factors to look for when choosing a forex broker that is reliable and trustworthy.

Regulatory Compliance

Making sure a broker is properly regulated is the most important consideration before opening a trading account. This helps to ensure you are working with a reputable forex broker and that your funds will be safe. Trading services are regulated by certain bodies to ensure they adhere to high standards of conduct.

Respected financial regulatory bodies include the Financial Conduct Authority (FCA) in the U.K., the U.S. Securities and Exchange Commission (SEC) in the U.S., and the Australian Securities and Investments Commission (ASIC) in Australia.

Demo Account

Many forex traders and investors often need a safe and free platform to hone their trading skills before diving right into the real world. A demo account allows retail traders to practice trading strategies and understand the risk involved in forex trading without risking real money or paying trading costs.

Initial Deposit

One factor that makes forex trading accessible to investors is the minimum deposit amount. Traders can fund their live trading accounts with as low as $100 for investors who want to start off small. You can use your account to make currency exchanges as needed.

Pips and Profit

Pip spreads represent the difference between the bid and ask prices for a currency pair. The wider the spread, the more the trader will have to pay in transaction costs, which can eat into their profits.

Leverage and Margin

Leverage allows traders to build larger positions with a smaller amount of capital, but it comes with increased risk. If the market moves against the trader's position, the losses can quickly exceed the amount of capital in their margin account.

To trade on leverage, you will need to keep a level of margin in your account that satisfies broker and regulatory requirements. Make sure you are aware of the margin requirements and that you have enough capital to meet them.

Currency Pair Offerings

Having access to a wide range of currency pair offerings is important for traders because it allows them to take advantage of different trading opportunities and strategies. A good broker will offer a wide range of currency pairs, including major currency pairs, minor currency pairs and exotic currency pairs.

Commissions and Spreads

Forex brokers make money by charging traders a spread, which is the difference between the buy and sell price of a currency pair. Choose a broker with competitive spreads and fees to maximize your profits. 

Some brokers also charge additional fees, such as withdrawal fees, inactivity fees and account maintenance fees. Be sure to read the fine print and understand the fee structure of a broker before signing up.

Trading Platforms

The trading platform is the software that connects the trader to the forex market. An effective trading platform should be easy to use, reliable and offer a wide range of tools and features. Most forex brokers offer MetaTrader 4 and 5 platforms, which have a range of built-in features and add-ons, such as charting tools, technical indicators and automated trading options.

Easy Deposit and Withdrawal Methods

When choosing a forex broker, consider the deposit and withdrawal methods offered. Ideally, you can access a range of payment options, such as credit cards, bank transfers, e-wallets and other payment methods. Keep in mind the time required for processing withdrawals with the fees charged. 

Customer Support

A reliable broker should have a team of customer support representatives available 24/7 to assist traders with any issues. Support can be offered through live chat, email, phone or the site. The website will usually have a comprehensive FAQ section and educational resources to help traders learn more about the forex market.

Educational Resources

Forex trading involves risk and requires traders to have a solid understanding of various aspects of the market. You may need to understand market dynamics, technical analysis, fundamental analysis, risk management and trading psychology to make informed trading decisions. Brokers often offer resources in the form of articles, videos, webinars, online courses, trading tools and market analysis. Educational resources can help traders stay up-to-date with the latest market trends and news, which can be critical to making profitable trading decisions.

Types of Forex Brokers

There are different types of forex brokers available in the market, each offering different features and services. Depending on your individual needs as a trader or investor, you can choose from different types of forex brokers. Choosing the right account type, trading platform, and brokerage company is important in achieving a successful forex investment. Here are the different account types a forex brokerage company may offer.

Market Maker 

A Market Maker is a type of broker that provides liquidity to clients by offering them both buying and selling prices for currencies. The broker will often accept the risk of holding the client’s position open, while also taking the other side of the trade.

Market Maker forex brokers generally charge higher spreads than other types of brokers as they are essentially providing a service by taking the risk of holding the client’s position open.

Electronic Communications Network (ECN) 

An ECN broker stands for Electronic Communications Network and is an account type that provides direct access to the interbank market without any dealing desk interference. ECN brokers can offer tighter spreads on major currency pairs compared to market makers, as they are able to access liquidity from multiple sources.

ECN Forex Brokers generally charge a commission fee per trade and are often more suitable for experienced traders who can take advantage of tight spreads and execute large volumes of trades.

Straight Through Processing (STP) Forex Broker

STP stands for Straight Through Processing, this type of broker is an intermediary between the trader and the market. STP brokers route all orders directly to liquidity providers, such as banks, and do not take the other side of the trade. This makes them suitable for those who want a low cost and fair trading environment.

STP brokers generally charge a small commission fee per trade, and can offer tight spreads on major currency pairs. They are usually more suitable for traders who are interested in automated trading systems, such as those offered by the MetaTrader 4 platform.

CFD Broker

A CFD forex broker is a financial intermediary that allows traders to buy and sell currency contracts for difference (CFDs). A CFD is a derivative instrument that lets traders speculate on the price movements of currencies without actually owning the underlying asset. With a CFD, traders can take advantage of both rising and falling prices in order to make profits.

Unlike traditional forex brokers, CFD brokers do not take the other side of a trader’s trades, making them suitable for traders who want to execute large volumes of trades in a short period of time. CFD brokers typically charge commission fees and may offer leverage on certain instruments.

No Dealing Desk

A No Dealing Desk (NDD) forex broker is a type of forex broker that allows their clients to directly access the interbank market. This means that instead of the broker taking the other side of a client’s order, the orders are sent directly to the liquidity providers in the interbank market to be filled. This allows for greater transparency and price competition between different liquidity providers, leading to tighter spreads and better execution.

No Dealing Desk brokers generally do not charge any commissions on trades, but may instead charge a small mark-up on the spread. They are often more suitable for experienced traders who can take advantage of tight spreads and fast execution times.

Finding Favorable Trading Conditions

Choosing the right brokerage account can be the difference between success and failure in the forex market. By considering these key factors, you can ensure that you choose a reputable, reliable, and cost-effective forex broker that will help you achieve your trading goals.

Trading forex using a well-equipped broker arms you with the ability to navigate forex markets. Choosing a reliable and trustworthy forex broker is a key step in successful forex trading. Before you pick a broker, consider the platform features and resources. By doing your research and choosing a forex broker that meets your needs, you can trade with confidence.

Benzinga’s Favorite FX Brokers

Anyone who trades forex will require the services of the most reputable forex brokers. After thorough research, here are reliable brokers that Benzinga recommends. 

Frequently Asked Questions