how to choose a forex broker

With a lot of options available, how to choose a forex broker that suits you? If you’re not a citizen of the United States or North Korea, most probably you will have hundreds to choose from, so here’s a few pointers to help you getting through the process-of-elimination:

1. Regulation

Regulation is enforced by a government body to make sure that the broker under their jurisdiction will meet certain rules to ensure fair practice and fund safety. Regulation is a huge factor to consider if you plan to invest quite a sum of money on this and want to be feel assured that your money is safe on the broker’s hand.

The Unofficial Hierarchy

While all regulatory bodies will take some measures to ensure client’s fund safety, the strictness vary between countries. To keep it short:

1. The heavy hitters such as NFA (US), FCA (UK) , and ASIC (Australia) will have the most strict rules to ensure fair play and the safety of client’s fund.

2. The second choice would be FSPR (New Zealand) and all EU based regulatory bodies which are directed by MiFID (Market in Financial Instruments Directive, a general must-be -adhered guide for all regulations made by EU based regulatory bodies) .

3. After those, come the rest. IFSC (Belize), FSC of BVI (British Virgin Island), FSA Seychelles (Seychelles), and FSC (Isle of Man) are particulary being the “favorites” these days due to the simplicity on establishing a business there. Of course, the easiness-to-do-business part also convey less control on the companies and thus less protection for the clients.

Three Key Points to Keep In Mind About Broker’s Regulation

1. Please notice that a lot of brokers have multiple companies under different regulatory bodies to allow them to cover as much ground as possible with as much freedom as they can possibly attain so they can set their own rules. If you’re registering to a broker brand, make sure you register at the correct company under the regulatory body that you want. If they’re fair, you can see this at the bottom of the site or during registration step. If there is no information, play it safe and ask their Customer Service first.

Example: The following are HotForex site accessed from 2 different countries

2. Always check the company name then cross check it with the registrar list available on the regulator site. If it’s not there, then you probably missed something important.
Example: FXPro info at FCA UK registrar

3. Less strict regulation offers a lot more freedom. This can be higher leverage, more features, more bonuses, easier account verification, more deposit and withdrawal methods, and so on. If these are important for you, you need to weigh between the benefits and the drawbacks.

2. Execution

If you cant get in and get out from the market in timely manner, then you probably trade at the wrong place. Execution is important if you want to execute your trading plan precisely. Don’t test on Demo; open a real account, put $5-$10 to it, and do test-trade on high impact news, market open time, and on general time. If what you see satisfies you, then it’s another reason to use that particular broker.

*You probably can’t/less likely to do this on a broker with higher minimum deposit. If you’re not willing to do deposit and test, you’ll have to depend on reviews from other users. FPA is a good place to find genuine user reviews, but be sure to take everything there with a grain of salt.

3. Spread

Generally you will want to spend as little as possible on trading cost. This can be calculated per lot traded: spread, and commission (if any) are your main trading cost. Of course, lower spread is useless if your order always executed at different price from what you asked for, so this goes in conjunction with the execution test. You can utilize Myfxbook in this research, they provide a handy spread comparison table on major pairs that you can check here.

4. Deposit/withdrawal method

The simplicity standard on doing deposit and withdrawal is vary from person to person, but this is relatively easier to check. Just check the information page on the broker site or ask their Customer Service. If you find one or two methods that you like to use, then you’re good to go.

I personally think these 4 factors are enough for basic broker selection process. Some people will say to check the promotion or any additional features offered such as multi-terminal platform or custom plugin/trading tools, but in my opinion those are secondary. You can consider it if it’s important for you, otherwise just leave it.