Top 10 Features To Consider When Choosing A Forex Broker

Choosing the right Forex requires careful consideration. Here are 10 features to look for.

1) Spreads, Costs And Trading Conditions

When choosing a broker, an obvious consideration is pricing or transaction costs. With cut-throat competition between the best brokers around the globe, retail investor accounts can now access ultra-tight institutional-grade pricing.

Many brokers offer traders a choice of fixed or variable spreads and commission fee structures when trading forex. ECN-style trading accounts that charge flat-rate, round turn commission fees allow for ultra-competitive spreads that can be as low as 0.0 pips, while standard accounts offer wider spreads, yet traders face no commission fees.

Account Types

Variable Spread Account Types: fluctuates with market conditions

  • Commission Accounts: Low spreads with flat-rate commission fees, often referred to as ECN-style account types.
  • No Commission Standard Accounts: No commission fees are charged on top of the spread
  • Fixed Spread Accounts(micro accounts): predetermined fixed spreads remain constant regardless of market conditions

Commission Account Spreads

Those who choose to pay flat rate commission fees usually gain access to tighter spreads than those signed up to fixed spread or standard account types. Brokers such as Pepperstone, IC Markets and FP Markets offer tight spreads on major currency pairs such as the EUR/USD that are hard to bet, averaging 0.09-0.13 pips.

Note* Low spread forex brokers are compatible with day traders and scalpers.  

As shown below, there can be significant variation between the average spreads offered by different brokers, with certain brokers having strengths within certain markets. For instance, Pepperstone offers the tightest spreads for the AUD/USD fx pair, while FP Markets provides the lowest spreads for the EUR/USD currency pair. Therefore, when choosing a broker and variable spread account type, it is best to research the average spreads for the specific financial instruments you want to include in your trading strategies.

See All Commission Spreads
0.02 0.23 0.27 0.85 0.17
0.10 0.20 0.40 1.30 0.20
0.09 0.59 0.40 1.38 0.17
0.20 0.50 0.40 1.50 0.20
0.17 0.59 0.54 N/A 0.30
0.20 0.60 0.50 10.00 0.40
0.10 0.60 0.60 1.30 0.50
n/a 0.20 0.60 3.10 0.50
0.44 0.85 0.40 1.30 0.42

Data taken from broker website. Accurate as at 01/01/2022

 

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Commission Fees

Commission fees are based on trade sizes and charged per side or round-turn. To minimise trading costs and maximise profits, traders should seek brokers that charge low commission fees. For example, Pepperstone is one of the best brokers, as round-turn commission fees are low at $7 per 100k traded.

No Commission Spreads

As no commission account types do not pay any additional commission fees on top of the spread, spreads are wider than commission account types.

See All No Commission Spreads
0.86 0.74 1.19 1.76 1.68
0.70 1.30 1.30 1.40 1.80
0.80 0.90 1.70 2.30 2.60
0.20 0.20 0.40 n/a 0.30
1.40 1.30 1.60 2.10 1.99
1.20 1.40 1.60 2.40 2.70
0.62 0.77 1.27 1.30 0.85
1.10 1.20 1.40 1.50 1.40
1.20 1.30 1.60 1.40 1.60

Data taken from broker website. Accurate as at 01/01/2022

 

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Fixed Spreads

While the average fixed spreads offered by the best brokers are significantly wider than variable spread account types, beginner traders may prefer the constant pricing structure as it is easier to determine potential profits and losses.

See All Commission Spreads
0.90 1.10 1.50 1.80 2.00
0.90 1.20 2.00 1.50 1.00
1.77 N/A 1.96 2.32 1.96
1.60 1.90 1.70 2.40 1.80
1.50 1.80 2.00 2.00 2.00
3.00 3.00 3.00 3.00 3.00
4.00 4.00 3.00 5.00 5.00
3.00 4.00 4.00 6.00 N/A
2.00 3.00 3.00 3.00 4.00

Data taken from broker website. Accurate as at 01/01/2022

 

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Trading and Account Fees

  • Overnight Financing Fees: As well as commission fees and spreads, traders that keep leveraged positions open for longer than one day are required to pay overnight financing fees (aka swap rates). Depending on whether a trader’s leveraged position is long or short, a financing cost that is derived from interest rates will be paid or received.
  • Inactivity Fees: If a trader leaves their account dormant, and doesn’t make any trades for a short-term period (usually 6-24 months), many brokers will charge monthly inactivity fees.

2) Type of Brokers and Business Models

Four basic types of broker’s offer retail investor account for forex trading. These are Market Makers, Electronic Communication Network (ECN), Direct Market Access (DMA) and Straight Through Processing (STP) brokers.

Market makers are dealing desk brokers, while ECN, DMA and STP brokers provide no dealing desk (NDD) order execution. Using a Dealing Desk broker or NDD broker can affect the spreads and associated trading costs.

Types of Brokers

Dealing Desk Brokers

Using dealing desks, market makers set their bid/to ask spreads and traders aren’t connected with global liquidity providers. Market makers match orders internally and therefore is the trader’s counterparty. New traders may benefit from the fixed spreads market makers offer, as it simplifies trading and commission fee calculations for beginners.

No Dealing Desk (NDD) Brokers

ECN, DMA and STP brokers that offer NDD execution match orders with external liquidity providers, eliminating the need for intermediaries. While ECN and STP brokers both connect traders with major global liquidity providers, STP brokers have control over their liquidity sources while ECN brokers do not. Likewise, customers of DMA brokers gain direct access to markets and can view all available prices offered by different liquidity sources. Sometimes, brokers may offer hybrids of the above execution methods or even different technologies for various trading accounts they offer.

NDD brokers offer the tightest spreads, with the business model suited to day trading, scalping and those using Expert Advisors.

3) Execution Speed And Slippage

Forex markets are volatile, thus choosing a broker with fast execution, and minimal slippage is important for trading strategy success. Slippage refers to the difference between the expected price when an order is placed and the actual price the trade is executed at. To reduce the chance of frequent slippage, traders can choose brokers with fast execution.

To ensure quick order execution, many brokers use fibre optic cables to connect to major liquidity providers such as financial institutions and banks. Equinix servers in New York and London allow brokers to achieve low latency regardless of the broker’s location, with data centres in the major financial hubs.

Servers NY

Market Orders

To find the best broker with the least amount of slippage, market order and limit order execution speeds are compared. Commonly used for automated trading, market orders are placed at the current market value. As shown below, Pepperstone’s execution speeds are significantly faster than its competitors, such as IC Markets and GO Markets.

Limit Orders

On the other hand, limit orders are automatically executed when the traders pre-set desire to buy or sell prices are met. When comparing limit order execution speeds below, FP Markets limit orders are executed slightly faster than Pepperstone, although both offer high-speed order execution.

4) Regulatory Oversight

Financial regulation varies between jurisdictions. Traders should research the investor protection they will receive, as trading with a regulated broker overseen by a top-tier financial authority ensures traders are not victims of scams.

Brokers in the EU and UK face some of the strictest regulations, with brokers overseen by the FCA and ESMA required to enforce leverage caps and closeout margins while providing negative balance protection to traders.

Most top-tier financial authorities such as ASIC, CySEC, FCA, ESMA and MAS require brokers to segregate client funds, ensuring traders funds are not used as operational capital.

Regulatory Oversight Is Important When Choosing The Right Broker

Major regulatory bodies around the globe include:

  • Financial Conduct Authority, United Kingdom (FCA)
  • The European Securities and Markets Authority (ESMA)
  • Australian Securities and Investments Commission (ASIC)
  • Financial Markets Authority, New Zealand (FMA)
  • Monetary Authority of Singapore (MAS)
  • National Futures Association (NFA) and The Commodity Futures Trading Commission, United States (CFTC)
  • Cyprus Securities Exchange Commission (CySEC)
  • Switzerland Financial Market Supervisory Authority (FINMA)
  • Financial Sector Conduct Authority, South Africa (FSCA)
  • Dubai Financial Services Authority (DFSA)
  • The Federal Financial Supervisory Authority, Germany (BaFin)

5) Customer Support

Getting in touch with your broker should be quick and easy. As well as contact methods, it is important to note the hours of operation. Many brokers will offer 24/5 customer service, with few providing support 24 hours a day, 7 days a week.

Common contact methods include email, phone and live chat. Online live chats are becoming increasingly popular as traders can instantly connect with customer service representatives and have their questions answered.

Depending on your location, multilingual customer support may be necessary. A top forex broker should provide multilingual customer support, with minor languages supported.

Forex Customer Service

Customer support is vital for beginner traders starting out. Whether you run into technical issues or have account funding queries, being able to find solutions quickly and efficiently is helpful for those new to forex trading.

Education

As well as customer support teams, many brokers offer extensive educational resources that will help traders of all levels of experience. Brokers provide a wealth of information that can improve a traders understanding of forex and CFD markets. Resources to look out for include:

  • Online courses, lessons and ‘academies’
  • Trading platform tutorials
  • Webinars and videos
  • eBooks

6) Available Trading Platforms/Ease of Trading Platform Use

Whether you want to focus on social trading or develop complex algorithmic strategies, it is paramount to choose a trading platform that provides the market access and trading tools required to achieve your investment objectives.

Confidence that the broker’s trading platform can be relied upon to perform as expected is vital, therefore many traders choose brokers that offer third party platforms with an established trading community and a wide range of trading tools.

Trading Platform

Another consideration is the device you are going to use for trading. While experienced traders may require advanced desktop platforms that mimic an institutional trading environment, new traders may prefer simple software designed for mobile apps. Many brokers also offer web trader platforms that offer the advantage of being accessible from any computer and browser.

Brokers Offering the Best Trading Platforms

Order Execution

Execution speeds are one of the most important factors when choosing a broker. If orders are not executed efficiently, traders will face large amounts of slippage that may result in losing money. The table below shows the difference in execution speeds between some of the world’s best brokers. For instance, Pepperstone customer’s can expect to experience minimal slippage compared to FXTM customers, as their orders are executed in half the time.

Trading Style and Features

MT4 MT5 cTrader Trading Platforms

Algorithmic Trading

The three most popular third-party forex trading platforms are MetaTrader 4 (MT4), MetaTrader 5 (MT5) and cTrader. As well as the ease of use and technical analysis tools, each platform is highly regarded for its automated trading features. MetaTrader’s Expert Advisors (EAs) and cTrader’s cBots allow traders to develop (or download) complex trading algorithms that automatically enter and exit trades and scan markets for opportunities. Although certain proprietary platforms offer automated trading features, Expert Advisors and cBots provide the tools required for advanced algorithmic strategies, along with large marketplaces to purchase or download free trading robots.

Social-Copy Trading

Social-copy trading is another method of automated trading that may be more accessible to those new to forex trading. While platforms such as MT4 and MT5 offer copy trading through MetaTrader Signals, certain brokers offer account mirroring services through pure social trading platforms. For instance, eToro’s social trading network allows users to copy the trades of more experienced investors while keeping up to date with markets via newsfeeds and community forums.

Social Trading

7) Leverage And Margin Requirements

Depending on a broker’s location and regulation, plus the asset class being traded, a broker will offer a maximum amount of leverage to traders. Leveraging (aka trading on margin), allows traders to put forward a percentage of a position’s total value, magnifying both profits and losses made on a trade. While some brokers allow traders to manually set their preferred leverage (up to the maximum), this is not a common feature among many good forex brokers.

As trading forex and CFDs is a high-risk investment activity, traders should be cautious when opening highly leveraged positions, as there is a high chance of losing money.

Forex Leverage

8) Broker Tools – Risk Management, Software

To protect themselves against market volatility and the high risk of forex trading, many investors seek brokers with a range of risk management tools as order types and demo accounts.

Order Types

Order types can help minimise your losses when price movements for currency pairs are not in your favour. While nearly all trading platforms and brokers offer basic order types such as Market Orders and Stop Loss Orders, not all provide advanced order types or Guaranteed Stop Loss Orders (GSLOs).

For a premium, some brokers allow traders to place GSLOs that guarantee a trade will be closed at the trader’s specified price, regardless of gapping or market volatility. If you require advanced order types or GSLOs, it is best to check your preferred broker offers such risk management tools.

Demo Accounts

Whether you are a new trader wanting to find an easy-to-use interface, or an experienced investor seeking advanced trading tools, demo accounts allow traders to test trading strategies and familiarise themselves with the trading platform prior to opening a live account. As traders can practice strategies and test trading robots with real-time market data, demo accounts are an excellent way to reduce the high risk of forex trading. While some brokers allow unlimited access and virtual trading balances, some demo accounts have time restrictions and limited virtual funds.

9) Funding Policies

Initial minimum deposits, deposit and withdrawal methods, and funding fees all vary between brokers. When choosing a broker, it is important to check whether fees are attached to your preferred payment method.

Minimum Deposits

To start trading, brokers require customers to make an initial deposit into their trading account. Some brokers such as Pepperstone do not enforce a specific minimum deposit, allowing traders to test the waters first. Some brokers require very high minimum deposits that may deter some customers or beginner traders.

Common Funding Methods

  • e-wallet payment methods such as Skrill, Neteller, PayPal and Bitcoin Wallets
  • Credit cards, commonly restricted to Visa and Mastercard
  • Bank transfer, wire transfer and broker to broker transfer

Deposit and Withdrawal Fees

One factor we often use when we compare online brokers is their fee schedules. For example, some brokers allow free unlimited withdrawals; others provide one free withdrawal per month, with any subsequent withdrawals incurring a fee, while a few charge a fee for every withdrawal. If we do not see a concise fee schedule on the broker’s website, this raises flags for us, so we call or write and ask the tough questions in our quest to choose the right online broker.

10) Reputation

With today’s online resources, it is easy to gauge a broker’s reputation within the forex trading community. To learn more about a forex broker and their reputation among traders, the following resources can be used:

  • Broker comparisons
  • Forex reviews from past and present forex traders
  • Forums where brokers, forex trading, and trading platforms are discussed
  • Awards from respected industry voices

To compare forex brokers and read reviews of the world’s best brokers, click here.

Choosing A Forex Broker FAQ

Choosing a MetaTrader 4 broker comes down to features such as low spreads, a good range of FX pairs and CFD instruments, fast order execution speed, no downtime, minimum slippage and other exclusive trading tools that other MT4 brokers don’t offer.

For further guidance, our team at Compare Forex Brokers compiled a list of the top 10 MT4 brokers here: Metatrader 4 Best Brokers In 2022.

Brand new forex traders require a trading platform with a user-friendly interface, low minimum deposit, copy trading feature, low trading costs and excellent training and educational service among others.

Check out how to choose the right trading courses for your trading needs: Best Forex Trading Courses: The Ultimate Guide for 2022.

Review the following 10 steps on how to choose a forex broker:

  1. Needs to have low spreads, costs and good trading conditions
  2. Assert what type of business model the broker operates on
  3. Execution speed and slippage
  4. Regulatory oversight
  5. Professional customer support service
  6. Range of trading platforms
  7. Leverage and margin requirements
  8. Risk management tools
  9. Deposit and withdrawal methods
  10. Reputation

Conclusion

The bottom line is that the wide array of brokerage choices is both a blessing and a curse. The blessing is that many choices translate to the opportunity to select a broker that will mesh precisely with your most important needs. The curse is that with so many choices, confusion is a distinct possibility. The key thing is to give yourself as much time as you need to choose the right online broker. The financial markets were there before you came along and will be after you are gone.

Comparison Tables Can Help You Choose The Right Broker

Background

The price of entry for establishing an online trading business, especially for the Foreign Exchange currency market (FOREX) and Contracts For Difference (CFDs) is modest and mainly consists of things most people already have, such as internet access and internet-enabled devices.

There are inexhaustible sources of information, much of it free, on learning the details of trading financial instruments. Much the same can be said for the trading software often referred to as platforms that allow scalping.

Of course, investment or trading capital is needed and we will mention only briefly that it is critically imperative that this money is true risk capital. The potential returns of online trading are substantial, meaning that the level of risk is as well, so a mind cluttered with thoughts about financial obligations of any kind attached to trading funds is a recipe for mental, and quite possibly physical, disaster.

Mitigating Risk When Choosing The Right Broker Online

The final element is a broker, a company that will provide access to the desired financial market. Similar to the almost endless choices for trading training information and platforms, there is a bewildering array of choices of brokers, so we offer the following information in the hopes of making it easier to compare and then choose an online broker.

About the author: Justin Grossbard

Justin Grossbard has been investing for the past 20 years and writing for the past 10. He co-founded Compare Forex Brokers in 2014 after working with the foreign exchange trading industry for several years. He also founded a number of FinTech and digital startups including Innovate Online and SMS Comparison. Justin holds a Masters Degree and an Honours in Commerce from Monash University. He and his wife Paula live in Melbourne, Australia with his son and Siberian cat. In his spare time, he watches Australian Rules Football and invests on global markets.

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