To start off, we should mention that very few retail (i.e. amateur or part-time) traders will require a dedicated forex broker. Considering the popularity of online trading apps and the competition between them, it’s no surprise that most offer all the FX functionality you’re likely to need. Even so, the changes sweeping online and digital financial services, plus developments in national regulations, make it desirable to know what to look for.

While you probably do not need to choose a forex broker separate from the other financial and investment services you use – it is possible to have everything under one roof – all of the criteria we’ve included apply pretty much verbatim to any investment broker or trading platform. 

Reminder: What is a forex broker?

A forex broker makes it possible for individuals to buy and sell currencies on the forex market via a forex account that the broker manages. In effect, these entities’ job is to connect buyers and sellers. Short of physically exchanging banknotes, people cannot access the interbank OTC foreign exchange market directly due to regulatory and compliance issues. (Trust us, it would be chaos otherwise.)

So, you need a forex broker to actually place trades on your behalf, just like you need a stockbroker to act in your stead if you are trading on the stock market.  Of course, forex brokers do charge a fee for this service. This is normally embedded into the bid/ask spread on each trade instead of being structured as commission. There will typically also be rollover fees to hold trades overnight.

Choosing a forex broker, from A to Z

There are some universal rules that we advise everyone to adhere to when choosing a financial services provider of any kind. Also, there are some features unique to forex brokers that will be more important to some traders than to others, depending on your goals, amount of available capital, and other factors. 

For example, it is always important to trade with a competitive spread in forex in order to maximise your profits. However, choosing the broker offering the very tightest spread is really only necessary for high-frequency traders or scalpers. This checklist for choosing a forex broker should help you decide what factors are most important for you.

One – Regulated brokers only

There are multiple advantages to using only regulated brokers, but it all really boils down to avoiding counterparty risk – not dealing with reckless or dishonest operators. The countries considered to have the best protections include Switzerland, the US, the UK, Canada, and Australia. 

However, it should be understood that CFD (Contracts For Difference) trading is illegal in the USA, which limits the available investment options when using forex brokers regulated there. Brokers based in other lesser-known financial centres are known as “offshore brokers”. These typically offer more flexibility in account functionality but this comes at the expense of looser regulation and less protection for the funds in your forex account.

Can a forex broker go bust?

There are never any guarantees, and even regulated brokers can default. Famous examples in recent years include MF Global and FlowBank. However, choosing a regulated broker does imply that there is a government agency that will be working on your behalf if your broker enters bankruptcy or has to cease trading. Regulated brokers are, for instance, required to segregate client money into a bank account separate from the account used for general business operations.

How to avoid forex slippage

Regulated brokers are required to offer “best execution” on clients’ trades. In practice, this means that your broker should give you the best price available to them when you click on a market order to trade a forex pair. Trading with unregulated brokers increases the chance that your trades get “slipped” or delayed. If this happens, the price you pay or get might be a pip or a fraction of a pip worse than it was when you thought it was executed. Over time, this slippage cost adds up and acts like a hidden fee on top of the bid/ask spread that normally comprises the cost of trading. 

Here is a handy list of the most-respected regulatory bodies by country:

Two – Good customer service

This might seem obvious, but a responsive helpdesk can be critical when you are unable to carry out an operation by yourself. Customer support can be invaluable for anything from moving a stop loss to checking margin balance to finding out about an open trade deficit. Behind the scenes, customer service is also your conduit to the broker’s operations department, which also needs to be on point to make sure you have quick and secure deposits and withdrawals.

Three – How many forex pairs are available?

A typical forex investment platform supports trading of over 60 forex pairs, covering all the major currencies including the Swiss franc (EUR/CHF), Canadian dollar (USD/CAD), Australian dollar (AUD/USD), British pound (GBP/USD), euro (EUR/USD), etc. If you are only focused on the major currencies for short-term day trading strategies, the number of pairs available is less relevant. 

However, if you want to do swing trading or use long-term trend-following strategies, you will want access to as many different options as possible. The same goes for anybody trading robots or using algorithmic trading or who follows trading signals. If you plan to trade other asset classes like options trading, stocks trading or commodities trading, then the range of choices your broker offers in these areas should be a consideration too.

Four – Forex leverage and margin requirements

The issue of leverage is increasingly becoming a trade-off you have to make in return for trading with a regulated forex broker. The rules are always changing but, at the time of writing, leverage in the European Union (regulated by ESMA) is capped at 30:1. In the USA, the figure is 50:1. It is still possible to trade with leverage as high as 500:1 by using an offshore broker. One of the few places left that can offer both a reasonably high amount of leverage and quality international forex regulation is Switzerland.

Five – Spreads and fees

The current trend is for zero-commission trading using mobile trading apps, as pioneered by RobinHood. Not charging commission on trades has, in fact, been a feature of the foreign exchange market for years. Instead, forex brokers charge a spread measured in pips. Their marketing materials often quote their “minimum spread”, but it’s helpful to try to find information on their average spread, as this is the more relevant number. 

Typically, the choice is between working with a market maker (99% of brokers), who build their commission into the bid/ask spread. Alternatively, you could trade with an ECN (Electronic Communication Network) and receive raw spreads (the same as traded on the interbank market) but pay a flat commission on each transaction. Naturally, the broker has to make money somehow. Being cynical for a moment, if the offered spread is too tight or non-existent, they must be making money in other, less visible ways. Also, check which currency pairs you trade for a tight spread; some kinds of transactions may be cheaper than others.

Six – Minimum deposit size

There is typically no minimum deposit required to trade FX. Some brokers, like Saxo Bank, used to have minimum deposit requirements of as much as five or ten thousand dollars. A beginner trader must consider how much money they need to put up to trade forex. That comes down to position size and margin requirements. 

Also bear in mind the payment methods available, such as debit card, bank transfer and online payment methods, as well as the transaction costs involved. Regulated brokers do not normally accept cryptocurrency because they cannot follow AML regulations if they do so. 

Seven – The difference between introducing and direct brokers

Some online forex companies are not brokers in themselves but follow what is known as an IB (Introducing Broker) business model. They are, in effect, middlemen between clients and brokers. If the IB offers a worthwhile service, such as forex signals or a forex robot that can automate trades, dealing with one can still be worthwhile. If a company has caught your attention via affiliate marketing on Instagram or other social media, however, it is a forex affiliate. Such marketing entities will only pass you through their website to register for an actual brokerage account. In most cases, it tends to make sense to sign up directly with a direct forex broker.

Eight – Which forex trading platform is used?

A good forex trading platform should include a reliable charting package equipped with the technical indicators you use in your trading strategy, provide quick execution of trades, and be reliable. One still-popular forex trading platform is Metatrader 4, or MT4 for short. Forex brokers license this software from a Russian company called Metaquotes. Metatrader 4 is needed in order to run an MT4 EA, which is short for Expert Advisor – a specialised automatic assistant that may incorporate AI. Another example of a platform is Exante. It is state-of-the-art and was developed years after Metatrader 4 so it includes more updated technology and many additional features.

Nine – Trading education, a forex signals service, and additional assistance

Most beginner traders find tips helpful while getting started. The internet is awash with trading ideas, forex trading courses, FX signal services, price action courses, forex news trading strategies, and additional resources, so this is more of a nice-to-have than an essential feature. Nonetheless, it can save time if the trading education is available through your broker, and it makes it easy to ask follow-up questions based on your own historical trades. 

Ten – A single account for all trading activities

In times past, opening multiple financial accounts for equities, forex, and other types of financial instruments made tracking your investment returns a wearying process. Combining your banking, insurance, long-term investing, short-term trading and other financial services into one hub, visible 24 hours per day via a single smartphone app, just makes life easier. Though not all brokers are quite so comprehensive, the greatest degree of integration you can get is desirable.