Forex broker choice – criteria

Forex broker choice – criteria

Another thing you can’t trade without – your forex broker

forex broker choice key words
broker key words

How to choose the right forex broker? What criteria to consider? 
Why is this choice is important? 
Can this make a difference between being long term profitable or not? 

All your forex trades are executed through a forex broker. There are plenty of forex brokers out there and their marketing activities are very visible.

How to choose the right broker for you? Please note that I did not say the “right” broker, but the “right for you”. The choice will depend on your circumstances.

I am not going to recommend any specific forex broker. I am not affiliated with any broker, i.e. I am not making money by recommending a broker and have no intent to do so.

OK, with disclaimers done, let’s get into the criteria…

How to choose the forex broker that will be right for you?

Of course, The Internet is your primary research tool, and you can find everything out there.
My criteria list:

  1. Trustworthy and reliable broker. This is the starting point. You are going to transfer your money there, so make sure this is not a scam, but a known and reliable broker. How to find out? reviews, website, you can check website ranking, opinions on forums, and of course websites that compare brokers, such as myfxbook.com.
  2. Transaction costs, incl. spread, commissions (if applicable) and rollover (swap points). Importance will depend on your trading style. Costs are always an important factor, but if you trade daily bars and your usual take profit is 100 pips, then whether the spread is 1 or 2 pips matters much less vs. if you are scalping for 10 pips gain (in such case 2 pips spread is 20% of your profit). If you do not keep positions overnight, rollover cots do not apply.
  3. Trading platform. This is important, you will spend hours there, so it’d better be user friendly, one that you like and the that supports the tools and order types that you want to use. There is no other way than testing multiple platforms, MT4, cTrader, SAXO, FXCM and others. Is server side trailing stop important for you? Do you want to move stop loss on chart? Do you plan to write trading robots?
  4. Trading conditions. Specifically, availability of microlots which is I believe critical for beginners. Number of markets. If you also want to trade commodities and stock indices, look for a broker with respective CFDs.
  5. Regulation, location, tax implications. Choosing a broker in your home country is for many reasons safer and more convenient. In case of any legal issues, case will be easier. Tax submission may be easier as a broker will prepare tax forms for you.
  6. Customer service. Not a critical thing, but you are likely to have questions and it is nice if a qualified and friendly staff answers them in a timely way.
  7. Market Maker vs. STP/ECN. Broker business model, this is a topic for an article itself, search for this and find out.
There is more, but this is my top criteria. Add common sense 🙂 
And of course, importance of some of the points will vary for different people and will depend on how much money they want to put on the broker account (and there is no reason to put an amount of money that is very significant for you until you are consistently profitable on demo and then using microlots with risk per trade of $25 or alike).
And, if you are not happy with your choice, you can always change a broker.
Never put all your money in one broker account.
Money you deposit to a broker account should be the money you can afford to lose.  Of course, if you trade in a responsible way (stop loss, right position size, best setups only) and if you do the right research and are not very unlucky (broker bankrupcy), then you should not lose all money, but, again, the money you fund your account with, should be your trading “risk capital”, never the money you need for living, and never borrowed money. Use for trading only your “speculation capital”, to be safe.

“Rebates” or “cashback” or “bonus”
Many forex brokers have affiliate programs where they pay some commission to “referring brokers” or “introducing brokers”. How it works? A referring broker will get some commission, usually around 1 pip of a spread from each of your trade, if you, as a new customer, are referred to by this referring broker. This is a marketing scheme by brokers.

Now, some of the “referring brokers” will give you back some of their income. This may somewhat reduce your trading costs.

While I prefer a broker that offers upfront low costs, you may want to choose to participate in some kind of cashback scheme, as also some of the referring brokers will provide some additional benefits such as training, some support, etc.

Some brokers, usually market makers, also offer “bonuses”. They assume, quite rightly from statistical perspective, that new traders will lose money, and, with market maker model, clients’ loss is often broker’s profit, which explains the scheme. You might still want to use it, but I would not use it as a primary broker choice.

In short, choose wisely, primarily based on broker reputation, regulation, transaction costs and platform. And, consider your trading style (it will impact transaction costs and what kind of markets and order types you need access to). 

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