More than $6.6 trillion is traded every day in the forex market. Trillion, with a “T”! You have to see those zeroes to realize how much that is—$6,600,000,000,000. Per day!
There’s around 7.8 billion people in the world. That means about $850 is being traded for every single person on the globe . . . on a daily basis. It’s incredible to think about. So how can you get in on that action?
It starts with educating yourself about the market, of course. After that, once you’re ready to start trading forex, you’ll need a broker. And while all forex brokers might look the same, there are significant differences.
It is not a decision to be taken lightly. Choosing the right broker might be the difference between becoming a profitable forex trader and losing your hard-earned capital.
Finding the Best Forex Broker for You
Choosing a forex broker should be pretty simple, but sometimes it seems like there are as many forex brokers as there are zeros behind that six up there. But fear not, in five easy steps, you can find the best broker for your particular trading style and circumstances.
Step 1: Narrow the field by your country of residence
Where do you live? Most of you can probably answer that question without much hesitation, but in this age of digital nomads, some people don’t really live somewhere so much as drift everywhere.
In fact, there’s a forex trader and vlogger who trades from her boat as she circumnavigates the world. That’s one of the beauties of being a forex trader—so long as you have an internet connection, you’re in business. In these cases, it depends on your country of residence.
Residency is critical when choosing a forex broker because the forex industry is heavily, but inconsistently, regulated on a country-by-country basis.
On one extreme is the US government, which has very strict regulations governing forex brokers. Brokers have to be registered with the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC). Maintaining compliance with these two entities is quite expensive and time consuming, so the list of available, regulated forex brokers for US citizens is pretty small.
Regulations for European forex brokers are a little more relaxed. In general they allow quite a bit more leverage than their American counterparts, and they allow the trading of CFDs, which are deemed too risky by US regulators. Due to the regulatory differences, most European brokers do not serve US resident clients and vice versa.
Many European brokers do, however, offer their services to residents of African, Asian, and Middle Eastern countries, in addition to those in the European Union. Brokers regulated in Australia and Singapore also serve wide swaths of the world other than the United States.
Then there are the brokers based in the Bahamas and other countries with very few regulations regarding financial services companies. These unregulated or offshore brokers will take clients from just about anywhere, including the US and Europe.
So, to summarize, no matter where you reside, you can choose between the regulated brokers of your respective governments or a government you trust, or the offshore, unregulated brokers that will accept traders from anywhere in the world.
Step 2: Narrow the field by risk tolerance
We all have our own unique inner risk calculator that informs much of what we do—whether we hit the gas to make that yellow/orange light, try the picnic potato salad that’s been sitting out in the sun for awhile, or decide to take a swim less than an hour after eating.
As a forex trader, your risk tolerance will inform every trade you make. It also comes into play when choosing your forex broker. Will you go the safe route and choose a regulated forex broker, or are you willing to risk using an offshore broker?
Offshore brokers offer massive leverage, sign-up bonuses, and other incentives, plus they allow the trading of CFDs and other instruments that may be restricted in your country.
The catch? Since they are unregulated, your money is in no way insured, and it is very difficult to hold them responsible should anything go wrong. No government agency will intervene on your behalf should you be scammed. And if you think you could publicly shame a broker into rectifying a problem with your account, think again. Take a look at some of the TrustPilot reviews of offshore brokers. They’re not good. The brokers don’t care.
Yes, some offshore brokers are more trustworthy than others, but all of them add an extra layer of risk to your forex trading, which can already be a risky proposition. Trading with an unregulated broker adds significant additional risks, such as potential problems making withdrawals, the inability to get qualified customer assistance when you most need it, poor trade execution, and more.
How much broker-associated risk are you willing to take on? Are these additional broker-associated risks worth an extra 200x leverage? Or is a regulated broker a better choice? You can make your own decisions, but I’d personally urge you to choose a reliable forex broker that’s regulated by your country of residence.
Step 3: Assess your remaining options
Once you’ve narrowed your choices down according to your resident country and risk tolerance, you can look at the remaining individual brokers and how they compare.
I assess forex brokers by giving them a numeric grade in each of these critical categories and then rank them according to their overall scores.
Typical forex brokers make most of their money via commissions and/or bid-ask spreads.
Per trade commissions are very straightforward. Your forex broker will take $3 per trade, for example. These commissions vary depending on what exactly you’re trading, so make sure you check commission rates for the instruments and currency pairs you plan to trade the most.
Forex brokers also make their money on the difference between the bid and the ask prices. Simply put, they are buying at one price and selling at a slightly higher price. In extremely liquid markets, this spread is very small. For example, on major currency pairs such as EUR/USD, spreads can be less than 0.5 pips with certain brokers.
(Forex trading revolves around “pips,” which is usually the fourth digit after the decimal in price quotes. For example, when the EUR/USD price goes from 1.0563 to 1.0564, that’s a gain of 1 pip.)
Spreads are higher for exotic currency pairs, so again, when you’re researching your broker’s fees, make sure you look specifically at the spreads of the currency pairs you intend to trade.
Bottom line is that you need to know exactly how much your broker will cost you on a per-trade basis. Depending on your trading style, you may be making a number of trades on any given day. If you are looking to take advantage of small price movements, excessive broker fees could turn winning trades into losers. Every dime your broker charges eats into your profits.
For forex traders who plan on holding their positions for longer, you will pay a “rollover rate,” or interest on positions held overnight, so be certain to check this rate as well.
Also be aware, especially if you decide to use an offshore broker, for potential hidden fees, including inactivity fees if you let your account go dormant for too long or fees related to withdrawals.
How well your forex broker executes your trades is very important. Any lag time between when you attempt to place your trade and when it’s actually made can cost you money.
You decide to make a trade based on a specific price point, but if your broker is slow in a fast-moving market, or if they frequently requote you, you could easily lose your trading opportunity and the potential profits.
Many brokers publish their average execution speed. Good brokers execute trades in less than a tenth of a second.
Initial deposit requirement
Lest we forget, you need money to trade forex. Before you start currency trading, assess how much money you can dedicate to trading. It seems obvious, but make sure that your trading capital is never more than you can afford to lose.
Different brokers have different minimum deposit requirements. Some brokers require a deposit of more than $1,000 to get you started, but for most brokers it’s far less. Choose a broker with a minimum deposit below what you have allocated to trade.
Ease of withdrawal
This is extremely important. You are depositing your own money into your trading account. You should be able to take that money back out whenever and however you choose. That seems pretty straightforward, but some brokers, especially the unregulated ones, put up roadblocks between their clients and the money in their trading accounts. They only make money if you’re trading, so obviously they want you to keep your money in your retail investor accounts.
Any reputable broker will allow you to quickly withdraw your funds and do so via a variety of means (crypto, bank transfer, etc.) A broker that makes it hard for you to withdraw your own money obviously doesn’t have your best interest at heart.
Different brokers offer different trading platforms—either their own proprietary platforms, or third party trading platforms such as MT5. You have to find a platform that is intuitive, with advanced trading tools, such as state-of-the-art charting and analysis tools. You must have instant access to the information you need and be able to quickly execute trades.
If you plan on trading forex while you’re on the go, also look for brokers that offer mobile trading platforms. Most online brokers offer mobile platforms, but they are not all created equal, so be sure to test the platform on your phone or tablet rather than just looking at screenshots.
Above all, you have to be comfortable with the platform. As a foreign exchange trader, you’ll be interacting with your trading platform for hours at a time, so choose wisely. Sign up for a demo account to test your broker’s trading platform before you commit.
Regulation and reputation
I already touched on this above, but do your due diligence. The safest bet will always be the regulated brokers. Always. They have to follow strict protocols. They can’t “misplace” your deposit. They can’t use predatory pricing schemes. They have a higher power to answer to.
Offshore brokers do not. They can get away with just about anything.
If you are considering an offshore broker, take a good look at their reviews on TrustPilot first. It’s best to do this on the weekend before the brokers have had a chance to respond and/or scrub negative reviews. You’ll be amazed at some of the troubles traders have had with offshore brokerages. Even a simple account withdrawal can be a battle.
Of course there are some offshore brokers that are better than others, but really look for dirt. Read reviews online. Talk to other traders. You need to have a good sense of who you’re dealing with before you make a deposit.
Many people overlook the customer service department when they’re choosing their forex broker, but quick, knowledgeable customer service reps can be invaluable.
Say, for example, you are having trouble executing a trade to unwind a position and the market is moving quickly against you. If it’s a technical issue, a good customer service rep can solve the problem instantly and save you a bundle. If your broker responds to you three hours later, you could be wiped out.
A good broker should have live support and respond to any queries within moments. The forex market moves fast. Your broker should move just as quickly to help you when you need it.
The internet is awash with forex trading tutorials and educational videos and webinars, but your broker can be a valuable resource as well. If you are still new to the forex market, having easy access to training materials can be a nice bonus. Even for experienced traders, a good forex broker can help you learn new trading strategies and keep abreast of the daily news items that may be affecting forex markets.
All forex brokers allow you to trade the major currency pairs, but forex traders who wish to specialize in more exotic currency pairs should make sure your broker offers them.
If your overall trading strategy involves financial markets beyond just the forex, make sure you choose a broker that offers access to other markets as well.
This is another consideration that will test your risk tolerance. Leverage allows you to trade with significantly more money than you actually have in your account.
If, for example, your broker allows 30:1 leverage, you can deposit $1,000 and have up to $30,000 worth of buying power. It’s a great way to magnify the returns on your winning trades, but, of course, it also magnifies your losses.
Regulated US brokers are allowed to offer a maximum of 50:1 leverage. Forex brokers in the UK can offer up to 200:1, and some offshore brokers offer up to 1000:1 leverage. There is also quite a bit of variance between brokers within each category. For example, not all US brokers offer 50:1 leverage even if they technically can and some offshore brokers cap their leverage at 200:1 or lower.
Choose the amount of leverage you’re comfortable with, but remember that just because your broker offers you substantial leverage, it doesn’t mean you have to use it.
Step 4: Sign up for demo accounts
After you’ve assessed your potential brokers based on the above criteria, I suggest you choose your top two and sign up for a demo account with each one. Almost all reputable brokers offer demo accounts that allow you to make simulated trades based on real market conditions.
Your goal at this point isn’t to test your trading strategy. You’ll be trading Monopoly money, not the real thing, so the psychology will be different. The goal of using the demo account is to test and compare trading platforms, customer service, spreads, and other aspects of your top two choices.
I suggest you trade for at least a week with both brokers before you make your final choice.
Step 5: Sign up and make your first deposit
Once you’ve made your decision, you’re only a little “paperwork” away from entering the $6 trillion per day forex market. I use “paperwork” in quotes because for the typical online broker everything will be digital. You’ll have to fill out an application that shouldn’t take more than 5–10 minutes. You may also have to upload documents proving your address and identity.
In many cases, your identity can be instantly verified. Deposit your money, and you’re in!
Quick Summary: How to Choose a Forex Broker
Very quickly, here’s the five steps to choosing a forex broker:
- Determine which regulated brokers are available in your country of residence.
- Decide if you want to trade with a regulated broker (strongly recommended) or risk trading with an offshore broker.
- Rank your remaining options according to the criteria I laid out above: how much they cost, trade execution, deposit requirements, ease of withdrawal, trading platforms, regulation and reputation, customer service, educational resources, tradable assets and leverage.
- Choose your two best forex brokers based on the above criteria and sign up for demo accounts. Trade with each broker for a minimum of a week before making your choice.
- Sign up and make your initial deposit with the broker of your choice.
Conclusion: Be Certain You Choose the Right Forex Broker
Take your time to make sure you’ve found the perfect forex broker for you. You may be eager to jump into the market, but finding out you chose the wrong broker after you’ve made a deposit and started trading can be an enormous setback.
So follow my five steps, and take as much time as you need to get this decision right. Even if you miss a few trading opportunities while you do your research, believe me, you’ll find more. How do I know? Because tomorrow, another $6.6 trillion—with a T—is going to change hands. As it will the next day and the next.