How to choose a Forex broker | 5 Practical Steps
There are two most common ways of choosing a Forex broker:
1) Simplified or "lazy way" — which is to read broker reviews, and based on stars and feedback make a choice.
2) Professional way — which is to do your own research while making reading reviews a part of that research.
Choosing a broker: Step 1 — Know what You want from trading
Start by creating your very own List of broker features needed.
Questions to add to your List:
- what currency pairs are you going to trade?
Sort those questions by the level of importance to You, add your own and begin the Search.
Choosing a broker: Step 2 — Do the search for matching brokers
Choosing a broker: Step 3 — Pay a visit to broker's website
After narrowing down your choice to few Forex brokers, it is time to make a further research by visiting brokers' websites and reading about their Forex trading rules and policies, understanding the terms and conditions; getting a feel of the transparency of the business they do: availability of addresses and phones, customer support services, presence of the information of regulatory institutions they are supervised by.
If a broker doesn't have any physical address listed on the website on the Contact page (or anywhere else, where it'll be visible to visitors) it should sound an alarm in your head. Phones, chats, skypes, emails - all that doesn't count if there is no address!
Secondly, the overall appearance of the website can tell about its owners. It doesn't have to be all modern and interactive, written on Flash etc, but it should have a professional look and all pages and links must be functional.
Next important factor: your best choice would always be to open an account with a Regulated broker — a broker which is registered with appropriate authorities and remains under their supervision and regulation.
- United States: NFA, CFTC
Choosing a broker: Step 4 — Read reviews about selected brokers
We have our own section of Forex brokers reviews, but we encourage you to search for additional reviews online in order to make a decision: type in your Search browser: "[Broker name] reviews" and follow the links to read more reviews.
As much as reading reviews about Forex brokers can be helpful, it also can be confusing and overwhelming. Often times we hear from traders that after reading reviews they've seem to have hit the wall and no longer sure what broker to choose, because there is so much bad and good mixed up in reviews about every single broker, it is almost impossible to filter out the truth and make a choice. What to do?
We suggest sticking to the simple rules:
a) if a broker has been in the industry for more than a decade - it tells you that the company knows a lot about doing Forex business and caring about clients, otherwise it won't be here today.
b) if a broker is regulated by a major regulatory body in its country - it tells you that a broker is serious about its business and making necessary efforts to align with rules and requirements imposed by the supervising bodies.
c) if a broker offers more that one trading product, e.g. besides Forex also has Futures, Stocks, Options, Commodities, CFDs etc - it tells you that a broker runs a larger business, carries more responsibilities and has more clients trading with them.
d) while reading reviews, make sure you see no reviews about cancelled profits or denied withdrawals. This is a red flag. If one trader can be wrong (that's possible), seeing several reviews of this kind would be of a great concern.
Filtering good and bad reviews
Be selective about reviews you read, always analyze who was the person who wrote a review: was it a professional trader, or a novice.
Apply a filter to 5 star reviews as well. It is not rare to see reviews submitted by brokers themselves in order to boost own ranking.
Choosing a broker: Step 5 — Final tips for the right attitude
Finally, your approach to choosing a Forex brokers should be somewhere similar to the process of choosing the right bank to trust your money to: reputation, transparency, convenience of carrying operations with money, good customer support.
Client Agreement? What's this?
Know Forex and know your risks
A nice educational resource has been put together by NFA: http://www.nfa.futures.org/forex_training/content/CoverPage.htm
Let your choice of a good Forex broker be easy and rewarding!
Watch video from Rob Booker: What to look for when choosing a Forex broker?
And finally, check if you're fully prepared and know everything about Forex world:
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