There are two commonly used methods to choose foreign exchange brokers:
- A simplified way—to read the comments about brokers and make decisions according to their star ratings or feedback. However, nobody can make sure that a five-start broker is the best choice for your trading, or the reviews you read is real (unfortunately, this is the reality of online reviews)
- A professional way-- do research by yourself, and read reviews only as part of your analysis. How to make a professional choice? Detailed steps are as follow.
Step one—figure out what you want from the transactions.
Make your own list of the requirements for the broker. It will be easier for you to choose your first (or a new) forex broker, if you sit down and craft an elaborate list of trading services and features
Add questions to your list:
What currency pairs do you want to trade?
What spreads do you fit (fixed or variable, how many basis points)?
Do you accept commissions for forex transactions?
What is your minimum investment (account size)?
How big of leverage do you need?
What tools or indicators do you need in trading?
Do you need a specific trading platform (eg. MT4)?
Do you want to scalp?
Do you prefer hedge?
Do you need to move your stop loss?
Do you need one-click transaction execution?
Do you want to have mobile phone trading and trading alert functions?
Do you care if the broker belongs to ECN, STP or a Trader Platform?
Do you care about the reputation of forex brokers? (Actually you have to care, for investment security)
Which way do you choose to withdraw or deposit, wire transfer, PayPal, credit card, etc.? (Your country may have restrictions in this regard.)
How much will you spend on deposits, transfers, and withdrawals?
Categorize these issues by importance, add your own ones, and start researching.
Step two— Search for matching broker.
It is a common way for traders to search the web, use search engines, and browse each broker's website.
Step three—visit broker’s website.
Narrow down the scope to a few forex brokers, then visit their websites, read their rules and policies for foreign exchange trading, learn the terms and conditions for further research, and understand the transparency of their business, such as address, phone number, customer service and validity of information from regulatory agencies.
You should be alert if there is no physical office addresses listed in the contact information section of your broker's website (or other sections that traders can view). Without an address, phone number, chatting records, skype and email, none of them can be trusted!
Secondly, the overall appearance of the website is the epitome of the owner. It doesn't have to be modern, interactive, with Flash, etc., but to have a professional look with all web pages and links being valid and effective.
"Coming soon" on a blank page is unacceptable! This always looks like a temporary information to new traders, however, based on our experience, this may take months or even years! To start a business, it is forbidden for the company that accepts client funds to allow some function of the web being unstart!
The next important factor: your best choice is to open an account with a regulated broker that is registered with the competent regulator and remains under its supervision.
United States: National Futures Association, US Commodity Futures Trading Commission
Canada: BCSC, Canadian Investor Protection Fund, OSC
UK: UK Financial Conduct Authority
Switzerland: Swiss Federal Ministry of Finance, Swiss Financial Intermediary Management Association, Swiss Financial Market Supervisory Authority
(Since 2009, all forex brokers in Swiss must have a banking license)
Sweden: Swedish Financial Services Authority
Denmark: Danish Financial Services Authority
Spain: CNMV
Japan: Japan Financial Futures Association, Japan Financial Services Authority
Hong Kong: Hong Kong Securities Regulatory Commission
Australia: Australian Securities and Investments Commission
Dubai: Dubai Multi Commodity Centre, Dubai Gold and Commodity Exchange, Dubai Financial Services Authority, ESCA
This is not a complete list, and there are foreign exchange regulators in other countries regulating foreign exchange trading companies
Step four—read comments about the broker you selected.
We encourage you to search for more reviews online to make a decision: enter "[broker name] reviews" in your browser and click the link to read more reviews
Reading as many reviews as possible is helpful, but can also be confusing and stressful. We often hear traders complain that they feel overwhelmed, and are not sure about which broker to choose after reading reviews, because there are both good and bad reviews about each broker and it's almost impossible to sort out the real information to make a right decision. Then, what hat to do?
Our suggestion is sticking to simple rules.
1. If a broker has been in the industry for more than a decade, it means the company he/her is in has a deep understanding of conducting foreign exchange business and caring about customers, otherwise it would be impossible to open to business until today.
2. If a broker is regulated by a country's main regulatory agency, it suggests that the broker is very serious about its business and will surly take steps to comply with the rules and requirements of the regulatory agency.
3. It indicates that the broker operates a large business, assumes more responsibilities, and has more customers, if there is more than one trading product provided, for example, futures, stocks, options, commodities, CFDs, in addition to foreign exchange.
4. While reading the comments, make sure there are no comments about canceling profits or refusing to withdraw funds, which is a warning. It is possible that one trader makes a mistake (which is possible), but a few these comments may cause considerable confusion.
Filter good and bad reviews.
Be selective in reading reviews, and always analyze the identity of the reviewer, such as is he/she a professional trader or a novice. Through the actual information of the review, you can tell not only the education level of the trader, but also the level of his understanding of the topics related to the written review. In this way, you will filter out a large number of inferior comments, in which novice traders accuse brokers when actually they are in trouble due to their incompetence.
Filter 5 star reviews. It is common for brokers to post their own comments in order to improve their rankings, which share their own special "style". Although the true identity of the reviewer is hidden as much as possible, it is not difficult to find the marketing information hidden behind the review, which is 100% marketing. Your task is to be sober and make every judgment objectively.
Step five- the ultimate tip for right attitude
In the end, the way you choose a foreign exchange broker should be similar to the way you choose a reliable bank for depositing funds, and the following issues should be taken into consideration: reputation, transparency, ease of fund operation, and good customer support.
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