Forex brokers are basically middlemen that initiate trades on your behalf.
Currency trading brokers, or retail Forex brokers, act as an intermediary that buys and sells assets for a certain amount of commission.
Brokers, in general, can be found in various financial markets, including commodities, derivatives, insurance, equities, and real estate. In the past, brokers would initiate trades over the phone.
Clients would call in the stocks they want to buy or sell, and the broker would initiate those transactions on their client’s behalf for a percentage-based commission.
But, after the technological advancement, everything including Forex trading has been changed.
It has been changed in a good way, and it has become easier to trade Forex.
However, in modern times, phones have been replaced by the internet.
Now, clients can have access to their accounts and make trades using electronic platforms on their computers or on their smartphones.
The trades still have to go through a broker who owns the systems that initiate the trades placed by their customers. So, the role of a Forex broker is still active.
Individual brokers were not really that common in the past as most players in the foreign exchange markets were large corporations, importers, exporters, and financial institutions.
With the origin of retail Forex and the rise of retail Forex brokers, almost anyone can now make an account and instantly trade online.
This is made possible through retail aggregators such as retail Forex brokers, who consolidate trades made by individuals, which they then trade in the interdealer market run mostly by financial institutions.
This made it possible for smaller and individual investors to get into the game despite the small amounts they were trading compared to large-scale financial institutions and businesses.
Retail brokers get their prices in real-time through major banks and through the Electronic Broking Service (EBS) system.
Before the advent of retail foreign exchange brokers, trades that were less than US$1 million dollars were discouraged and relatively not allowed in the market. One way this was restricted was through a high bid-ask price that discouraged such trades.
The way modern retail Forex brokers make money is through a fee collected from the bid-ask spread.
The difference in the spread is the broker’s way of compensation for helping you trade.
Most brokers also offer their clients a way to make more money from small investments.
This is done through margin accounts, which basically entails the broker lending you money to make larger bets on the Forex market.
This effectively multiplies a trader’s capital by as much as 5,000 percent in some cases.
Anyway, if you want to trade successfully, it is crucial to find the right broker.
In an international market like the Forex market, it is pretty hard to find the ideal broker.
And there are many reasons why it is hard to find the right broker.
One of the major reasons is competitiveness.
Yes, nowadays, it is easy to become a Forex broker, and the rate of scam brokers is high.
As beginners, you have to be careful when you are making a decision.
You might have certain demands related to the tools, platforms, and currency pairs, so if you don’t meet the right broker things can get tough.
If you have some understanding of your trading style, you can determine the broker successfully.
However, if you have entered the Forex market with zero experience, you wouldn’t know it.
Hence, I’ll share some tips to find the right Forex broker.
I know, at times learning the Forex market can be daunting.
You can’t ignore the important parts of Forex trading.
When we talk about important parts, finding the right Forex broker holds a higher place. So, how can you avoid it?
If you have selected the right broker, the trading journey will become much easier.
We don’t say trading is easy, but brokers help you throughout your Forex journey.
You let the broker handle your account, with the trust you set on the broker.
Perhaps, your great strategies and techniques will become vain if you don’t find a reliable broker.
If you don’t want to fall into any scams, you must select the right broker. For that, consider the following tips.
Focus on your needs
If you know your needs, selecting a broker becomes simpler.
Decide what you are going to do.
Are you planning for a full-time trading journey or part-time?
Are you interested in bigger or smaller moves?
There are many brokers out there, but it can take some time to find the right broker.
However, before you select the broker, you must consider the capital amount, account type, and withdrawal and fund deposit methods.
As there are many brokers, some brokers’ offerings might not align with your requirements.
Hence, it is important to consider whether the broker offers what you require.
Consider the broker’s offer
Now, this relates to the latter section of the previous point.
If you are day trading, you can waste time, meaning no ‘dealing desk’ involved. When dealing desk is involved, it takes a lot of time and will lead to “re-quotes” requirement.
When this happens and when the broker questions whether to proceed or not, the opportunity would have been lost.
However, to decide on the right broker, you must check whether regulations are perfect.
The broker should be regulated in a well-established system.
Also, consider these important factors.
There are Forex accounts funded with small amounts, maybe as low as $50.
But, once you get the leverage, you gain more buying power which is higher than the deposit amount.
This is one of the reasons that naive traders get attracted to the Forex market.
Most brokers provide the standard, micro, and mini accounts with different deposit requirements.
Withdrawal and funding policies.
Every broker sets withdrawal and funding policies.
Some brokers might allow credit card, PayPal, wire transfer, and ACH payment for funding.
However, the broker might charge a fee for some services, so inquire about it before you select him or her.
That being said, you must ensure to select the ones regulated by Canada, U.K., U.S., Japanese, Australian, and New Zealand authorities.
Find a broker who’s available whenever you are in need.
You can check whether the broker is responsive by opening a demo account. While opening the demo account, you can send an email with questions that you intend to ask the broker.
If the broker provides answers and reverts fast, you can decide the level of responsiveness.
If you are not satisfied with their service, don’t select that broker.
Find out about regulatory compliance
It is a must for the Forex brokers in the U.S. to be a part of the National Futures Association (NFA) and the U. S. Commodity Futures Trading Commission (CFTC).
Once registered, the Forex broker becomes a Retail Foreign Exchange Dealer and a Futures Commission Merchant.
The self-regulated NFA organization is a worldwide industry in the United States.
And, it is strict about rules and services so that integrity is protected.
This makes the members, traders, and investors adhere to regulatory responsibilities.
The independent government CFTC agency regulates the options and commodity futures in the United States.
This agency focuses on protecting the market participants from facing fraud and abusive practices in the financial markets.
And they work hard to provide financially reliable markets for the market participants.
However, you must not assume that brokers who own fancy websites belong to NFA or are regulated by CFTC. Instead, you can check whether the membership number of NFA and CFTC regulation is mentioned in the “about us” page of the website.
Even countries outside the U.S. will have their regulatory body. So, make sure to consider regulatory compliance.
Look for credible reviews
Written reviews are crucial when selecting the right broker.
You might have to read the reviews and check some discussion forums.
However, you can’t rely on some random review sites and discussion forums because fake reviews are common.
And you’ll find both positive and negative fake reviews to make it look reliable.
Hence, you have to be really careful when you are looking for reviews.
Many naive traders lose money just because of their carelessness in finding credible reviews.
Be mindful of objectivity and get connected with professional traders to get ideas and references.
Don’t accept bonuses
When you create a live account, you’ll be offered bonuses, but don’t accept them.
For example, you may receive a $50 bonus for an account worth $500, but it is not going to benefit you because it may link with the withdrawals.
Eventually, some of your money will be with the broker.
However, when you are creating the account, make sure to send an email mentioning that you don’t accept bonuses along with your application.
This may help you stay in the safe zone.
Think about the trading platform
Another important factor that is linked with Forex brokers is a Forex trading platform.
It is the portal to connect with the market. When you are selecting the trading platform, it is important to consider visually pleasing, easy to use, and a comfortable platform.
You must be able to enter and exit trades easily.
Also, the trading platform must include a wide range of fundamental and technical tools.
If you don’t find a broker that offers a well-designed platform, you will not be able to see the trading options clearly.
Most naive traders end up falling for the poorly designed platform, so it is important to do proper research before you settle for a broker.
When you are selecting a Forex broker, you must not be mindless or careless.
Instead, you have to be vigilant to select the right broker.
Of course, it might take some time, but it is worth it. Only if you have a good broker can you trade successfully!