Forex trading for beginners can be intimidating because it isn’t easy to learn about foreign exchange and currency trading. For this reason, success in fx online trading starts by working with the best brokerage accounts. A good forex trading broker will help you understand what forex is, safeguard your forex trading account, mentor you on how to trade the forex market, and help you build your account.
5 THINGS TO CONSIDER WHEN RESEARCHING FOREX INVESTMENT BROKERS TO REDUCE RISK
- How to Do an Online Search for the Best Online Brokerage
- Red Flags to Spot an Unscrupulous Broker
- What is a Forex Broker? Three Types of Online Brokers
- Warning Signs It’s Time to Change Your Forex Broker
- Checklist to Find Reputable Forex Brokers
Since choosing the best forex broker and using the best trading platform is essential for your success in the forex market, let’s review 5 guidelines to help you find and hire an honest, educated, and regulated forex broker.
1. How to Do an Online Search for the Best Online Brokerage
Unfortunately, Googling forex broker listings for the best online brokers is not the best way to do a search. You are unlikely to stumble upon the best brokerage firms by simply relying on a good keyword phrase related to forex brokers or the best forex trading platform.
If you live in the US, you won’t get far, even if you Google good keyword phrases like “best forex broker in USA,” “forex broker USA, or “best us forex broker.” Nor will you make any better progress if you widen your search, replacing your quest for US forex brokers with keyword phrases like “international forex broker” or “global forex broker.”
You will find many people claiming to be the biggest forex broker, or the best forex broker for US clients. Many websites who promote themselves as the best forex trading brokers will fail to deliver and you’ll end up losing money with online forex trading.
A much smarter approach is to do a forex broker comparison by going to directory-type websites that do forex broker reviews. These forex broker listing websites will have already done the heavy lifting for you by filtering out the worst currency trading brokers.
Two sites for top forex brokers reviews that have made the process much easier are Forex Peace Army and Myfxbook. The brokers on these sites have been reviewed and rated to make it easier to find a legitimate broker. Many are NFA registered brokers who offer a worthwhile forex broker bonus rather than mere marketing hype.
If you are not sure exactly what is forex trading, visit forex.com to broaden your understanding of what is a broker in the forex market and how to do currency trading. The educational section of this encyclopedic website will answer all sorts of miscellaneous trading questions you might have. For instance, some frequently asked questions include:
- What is forex trading?
- What is the best day trading platform to use?
- What is the national futures association (NFA)?
- What is the financial conduct authority?
- What are Forex CFDs?
- What is the Futures Association?
- What are futures?
- What are bitcoin futures?
- What are regulated brokers?
- What are MetaTrader forex brokers?
- What are micro forex brokers?
- What are forex interactive brokers?
2. Red Flags to Spot an Unscrupulous Broker
While using a directory to search for brokers will greatly improve your chances of finding the right one, you will still need to watch for red flags.
The way to compare a forex broker who is just out to make money with a reputable forex trader is to look for certain clues. Although anyone can claim to be the best forex broker online, you can quickly look past the hyperbole by examining the site design and site content of forex companies.
Red flags to spot when it comes to site design:
- The forex trading interactive broker has an unprofessional name that no reputable forex currency trading broker would use. Scammers usually don’t want to pay for a good domain name or may try to excite your interest with an attention-getting domain name.
- Poor site design suggests that the website was built using a cheap site builder program or free template. The best online trading sites invest in well-designed, user-friendly websites.
Red flags to spot when it comes to site content:
- Plenty of get-rich-quick hype about forex trading
- Glowing reviews from people who claim to have made large amounts of money with little effort
- Bold promises that stretch your credulity
- Amateurish writing that suggests that a professional copywriter was not hired to create the content
- Poor grammar, misspelling, and punctuation errors that suggest the copy was created in a hurry
Top ranking forex brokers will hire a top designer and copywriters to create a professional website with highly-informative content. World forex brokers understand the value of marketing and can afford to pay for top online media professionals to build their brand.
3. What is a Forex Broker? Three Types of Online Brokers
Three primary types of brokers are market makers (MM), straight-through processing brokers (STP), and electronic communication network brokers (ECN).
A market maker keeps all trades in-house. They aren’t routed through an electronic communications network. While your trades will get executed quickly and liquidity is never an issue, there’s a conflict of interest because the broker is taking on the other side of a trade. This means that if you make money, they lose money. Consequently, the broker will choose to win at your expense. For this reason, it’s always important to avoid MM brokers and choose either STP or ECN brokers. This way, there is no conflict of interest compromising your profits.
While an STP broker is better, this is a hybrid model. Some trades are in-house while others are sent to the ECN pool. If you’re a profitable trader, you’ll be moved to the ECN pool, but if you’re not a profitable trader, which is the majority of traders, you’ll be kept in the MM pool.
The best trades, therefore, are via the electronic communications network. All conflicts of interest are removed between you and your broker because your trades are sent to different providers of the liquidity pool, who will then take the opposite side of the trade. Your broker will earn a commission whether you have successful or unsuccessful trades.
Unfortunately, many brokers advertise themselves as ECN brokers when, in fact, they are either MM or STP brokers. Assuming you don’t flush out the lie through researching reviews before you sign up, you can still catch their trick by noticing the following warning signs:
- A delay in the execution of your order
- The price is manipulated
- Some trades aren’t closed in time
- The trading platform will freeze when there is a big new release or a massive amount of slippages
- You are accused of violating the broker’s Terms & Agreements and your account is closed
All these are signs that the broker has a conflict of interest and is manipulating your trades.
4. Warning Signs It’s Time to Change Your Forex Broker
Sometimes, you might end up with a bad broker despite using a directory to filter out brokers, discovering a professional website, and choosing one who claims to be an ECN and handles clients with fast response times.
Here are some warning signs that you’ll need to find a new broker:
- Slow execution speed. Speed is measured by the latency between when you click to buy or sell on your trading platform and the actual market timing. Fast trade execution latency is between 50 to 300 milliseconds. Usually, if your trade is executed quickly when the market is calm, then you can be assured that you are within this optimum range. Consequently, when there is market volatility, you can execute a fast trade. If you notice that latency is slower than you would like during calm markets, then you should find another broker because you’ll lose money when the market is highly volatile.
- High minimum deposit. It’s easy to get conned into putting down a high minimum deposit because the broker will claim that a high deposit ensures better trading conditions. If the top level of their program asks for $25,000 or more, chances are that you’re being asked to trust a broker who has yet to prove their value. The only time you should trust a broker is if they work to build your trust by asking for a small minimum deposit. If you are asked for $100, then you know the broker is willing to prove their worth. Still, even $1,000 to $5,000 is reasonable for a higher end package if the broker has an excellent reputation. But if the broker asks for anything beyond 250 units of a base currency, the chances are you’re at risk for getting scammed.
- Fast deposits, slow withdrawals. If the broker makes it easy to make a deposit but much more difficult to make withdrawals, then you should be wary. If, for instance, they have multiple ways of depositing money but only one way of making a withdrawal, then you should exercise caution. Look for a broker who not only offers many ways to make a deposit but also multiple ways to make withdrawals. A general rule of thumb is that you should be able to have your withdrawals processed within a day. But, of course, keep in mind that credit cards and wire deposits can take as long as three days.
5. Checklist to Find Reputable Forex Brokers
Here is a checklist of some things you should be doing when researching the legitimacy of a Forex broker:
- Credentials within the industry
- Opinions of previous clients
- Membership in a regulatory agency
- A comprehensive grasp of promising foreign currency investments
- Transparency in disclosing all trade information
- Provision of a demo account to test their system
- Margins and leverages that are within the industry norms
- Competitive pricing
- No dealing desk so that you can get quick access to the international forex interbank market
- A trading platform with clear buy and sell button, user-friendly charting software, a simple interface, customization options, news feeds, trading alerts, and mobile app responsiveness
- Transaction costs that are aligned with broker security
- Customer support with a 24-hour hotline, knowledgeable reps, and multiple channels like telephone, email, and live chat
- A hassle-free deposit and withdrawal system for investors
Perform Due Diligence
Finding the best broker for forex trading is not as easy you might think. If you’re not careful when combing through a forex broker list, you’re likely to find someone who may scam you.
An honest retail forex broker will provide you with all the right information and forex trading interactive tools you need to succeed with the currency markets. They will also help you with understanding foreign currency investments—from pips to IG Markets to CFDS to currency revaluations. You will work with a courteous and responsive agent and have many ways to reach customer support. Your commission will be low, trade execution times fast, and as a forex bonus, you’ll be able to use multiple, fast ways to deposit your funds and make withdrawals. Perhaps most importantly, you will be able to get guidance when needed.
Conversely, a dishonest broker might manipulate trades, delay execution of trades, artificially price market moves, or freeze your trading platform. The broker might be unable to close out your trade on time and this would cancel out your profits. You may also have to put up with the frustration of dealing with unresponsive support, rude customer service, fake deposits, and a delay in your withdrawals. These are just a few of the many things that can happen when you select the wrong broker.
As you might imagine, brokers who are trustworthy and know what they are doing are not easy to find. Meanwhile, fraudulent brokers are prolific. For all of these reasons, it certainly pays to do your due diligence before making this important decision.