How to choose the Best Forex Broker for online Forex Trading
Reading Time: 12 Minutes
Table of Content
1. What is the Foreign Currency Exchange Market?
2. Dealing Desk Brokers (Market Makers)
3. Non-Dealing Desk Brokers
4. STP Forex Brokers
5. ECN Forex Brokers
6. ECN Forex Brokers List
7. How to choose the Best Forex Broker? (10 Steps)
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A common question we see in Facebook Fan Pages and different Forums across the world asked by both the amateur and experienced Retail FX Traders is, “How can I choose the best Forex Broker?” This is an important question because if we choose a scammer, we will lose money, lose time and even lose interest in Forex! Shortcomings of your strategy will lead to a financial loss in Forex but let’s also discuss as to how your FX Broker will be responsible for your loss. Forex trading is lucrative, yet you require the right information, persistence, experience, and a trusted forex broker.
Is it hard to find a Secure Forex broker? YES! Why? It is a big battle of Advertisements on the internet! The one that spends more on Advertisements attracts more crowds, whether the Forex Agent is good or not. However, if you know how to find the one for you, it will be easier to avoid scam brokers. I will give you a step by step guide. I invite you to invest 10 minutes of your time to get a complete understanding about online Forex Brokers. Let’s get down to business.
What is the Foreign Currency Exchange Market?
To put it in simple terms, Currency Exchange means trading one Currency for another. Say we have USD 1000, and today, we use them to buy Euros. So, we receive EUR 843 at a Rate of 1.1850 (1000/1.850). In a few days, we sell the Euros and rebuy USD. We receive USD 1007 at a Rate of 1.1950 (843*1.1950). Now we have gained a profit of USD 7.
The market in which many major banks in the world, especially, Central Banks, exchange their respective local currency with Foreign currency for their needs is what we call the foreign exchange market (Forex, FX, or currency market). For example, let’s think that Australia needs to buy Crude oil from the Middle East. If so, it cannot pay in Australian Dollars instead of USD. No matter who you are or which country you are from, if you want to buy Crude Oil, you need to have USD in your pocket. So, Australia now needs to exchange Australian Dollars to USD and pay to the Middle East. If the UK needs to import vehicles from Japan, it needs to exchange GBP to YEN and then pay.
We, individuals, could also join this process conducted by banks on a daily basis, as Retail Traders, and earn a profit. That is why the Forex Market is so important to us.
What are the unique features of the Forex Market?
- It is the world’s largest financial market with a daily average transaction value of $5 trillion, according to the 2017 data.
- One unique advantage of Forex Trading is whether the price increases or decreases it is possible to trade and earn a profit. The reason behind it is, we are trading a pair. If we consider the Stock shares, we can only buy when the price is low and sell when the price is high.
- The absence of a physical location. Equity markets like The New York Stock Exchange (NYSE) or the Japan Stock Market (NIKKEI) have physical locations. For example, the NYSE is located in Wallstreet, New York. However, the FX market does not have a physical location, thus, is said to be a Decentralized or an Over-the-Counter Market. The FX market is made up from the Banks, Hedge Funds, Professional and Retail Traders that join a common platform.
- You can trade in the FX market for 24 hours a day, five days a week.
Who is a Forex Broker?
When do we need to buy a vehicle, land or a house we seek the assistance of a broker don’t we? Moreover, what does the agent do? He connects us to the Real Seller, or he buys the property from the seller on behalf of us so does an FX Currency Broker performs a similar job. We cannot directly buy or sell from the Inter-Bank Market. We should trade via a Broker because the Inter-bank market is a network existing among Banks to perform transactions.
Inter-bank transactions are performed from the EBS and Reuters systems. The Retail Traders, us, are at the bottom. Above us are the online Forex Brokers. They connect us to the Forex Market through Liquidity Providers using the MT4 or any other platform. For the service provided, they charge a fee, either a Spread or a Fixed Commission. Well, after all, they do not do it out of love. Forex Brokering is a Multi-million-dollar business. The FX broker also has expenses for the service that they provide regarding Server Installation, Server Maintenance, Special Software, Expert Human Resources and much more.
Types of Forex Brokers
- Dealing Desk
- Non-Dealing Desk
- STP Forex Brokers
- ECN Forex Brokers
Dealing Desk Brokers
He is also known as the Market Maker. The Buying and Selling processes of our trades are not performed in the Real Forex Market but a market created by this FX Broker. He displays prices in the MT4 similar to that of the Price Graph of the Real Market, but the broker himself fills our Orders.
For example, say we have set up a sell order of EUR/USD 1 Lot in the MT4. As soon as we set the order, the broker checks the software to check whether another client of him has set up a buy order for EUR/USD 1 Lot. If available, the broker sells it to the client. If not, the broker himself buys our order. The trades that we set up do not leave the broker.
Brokers earn profits by selling the orders received by the clients at a higher price. Since the Broker himself fills our order, if we make a profit, the Broker will suffer a loss. If you search on the internet, you will come across many cases where Brokers have intentionally attempted to make the client suffer a loss, and also cases where Brokers have not allowed the client to withdraw profits.
Disadvantages of Dealing Desk Forex Brokers
- High Spread
- Slow Execution
- Artificial Slippage
- High Swap Charges
- Scalping not allowed (some of them)
- Stop Loss Hunting (some of them)
Non-Dealing Desk Brokers
STP Forex Brokers (Straight Through Processing Brokers)
As the name suggests, they send our orders directly to the Liquidity Providers. Banks, Hedge Funds, Investment Corporations or another Broker could act as Liquidity Providers. The Non-Dealing Desk Brokers do not perform the trade in a market created by them. So, they cannot manipulate the price as the middleman, unlike Dealing-Desk Brokers. Our orders are matched with the Inter-Bank Market price using computer systems and Algorithms. Then Liquidity providers are filled.
Advantages of STP Forex Brokers
- Low Spread than DD brokers
- Fast Execution than DD brokers
- Minimum Slippage
- Flat Swap Charges
- No Requotes
- Scalping Allowed (Most of them)
- No Stop Loss Hunting (Most of them)
ECN Forex Brokers (Electronic Communication Network)
These ECN Forex Brokers are the most advanced and latest system in the battle. Brokers ECN offer quotes with Zero Spread. YES! That means in your MT4 charts there is no buy and sell two price lines. There is only one line, How cool is that? The prices are quite similar to that of the Inter-Bank Market.
But, there are only a handful of ECN Brokers out of hundreds of FX Brokers in the world. You will understand why when you read the article until the end. The main advantage of the ECN technology is that the Forex brokers cannot change our orders whenever they wish. Dealing Desk or Market Maker Brokers have the luxury of doing such changes to our orders. They even can change the market itself. Since ECN Brokers cannot make such changes when doing transactions, the Forex Trader is fully secured.
You already know that the prices of the Forex market depend on the Inter Bank Transactions. The client order prices filled by the ECN Brokers are identical to that of the Inter-bank market. The ECN system acts as a bridge between the Retail Trader and the liquidity provider who fills the orders of the Retail Trader. Banks, Hedge funds or other Major Brokers are chosen as Liquidity Providers. These Liquidity providers assign different prices for the orders at the same time, and the ECN system selects the liquidity provider with the lowest spread according to the situation. Since competitive prices are given for the orders, the spreads of the ECN brokers are very low. Since most of the times it’s zero, ECN Brokers is the most suitable type of Brokers for scalpers.
How ECN System work
The technology setup that creates this link is called FIX Protocol (Financial Information Exchange Protocol). The Broker, from one side, takes the liquidity from the liquidity provider and prepares to give them to the clients, and from the other side, delivers the orders received from the clients to the liquidity provider. Since this bridging system operates in a matter of milliseconds, the execution times for the orders are very less. Another advantage is that EAs (Expert Advisors) used with automated trading, could be easily used in ECN models.
ECN brokers earn a profit from a fixed commission assigned based on the number of transaction Lots. When more and more clients trade, the Broker earns more. So, the Broker will never try to make a loss for the client.
You can trade at any given the time of day. Continuous trading is guaranteed even during the News Releases. You might have experienced with some of the Forex Trading Brokers that their platforms slow down or they increase the Spread during the Economic News Releases. However, no such thing would happen in this system.
Advantages of ECN Forex Brokers
- Very Low Spread (Zero Spread)
- Super-Fast Execution
- No Slippage (Most of the time)
- Flat Swap Charges
- No Requotes
- Scalping Allowed
- No Stop Loss Hunting
- More Security for Clients Funds
ECN Forex Brokers List
|Australian Forex Brokers|
|Pepperstone||Visit Website||Read our review|
|IC Market||Visit Website||Read our review|
|UK Forex Brokers|
|FXCC||Visit Website||Read our review|
|OctaFx||Visit Website||Read our review|
|Robo Forex||Visit Website|
|USA Forex Brokers|
|FX Choice||Visit Website|
How to choose a reliable Forex Broker?
We need to find a Forex Trading Broker who would work for the benefit of us rather than trying to leave us at a loss end. If you do not have any idea about “who a Forex Trading Broker” is, you can never find out the Best Forex Broker for you. That is why we introduced the concept of a Forex Broker before moving on to finding one.
Since now you have a good idea about it, let’s select the Top Forex Broker in 10 steps. Keep in mind that your decision of a good broker should not be based on the Deposit Bonus, No Deposit money or high Leverage that the Broker provides you with. We do not say such Brokers are bad, but nothing comes for free in this world. As you might have heard, good things come at a price.
Step 01 – Headquarters location
First things first, we should check the country of the Broker and whether he has a Head Office in our country. We would feel safer if the Broker is from our country, won’t we? In fact, we could even go to the Head office and discuss if he has a local office. More so, if he has an office in our country, he would be obliged to obey the Laws and Regulations of the country. Some Brokers do not accept clients from the US. This could be identified when you are filling your country on the registration form. Even if you choose a Broker from another country, make sure you choose one from a top country.
Step 02 – Market Maker or Genuine Broker
As we mentioned earlier, selecting a Dealing Desk Broker has a higher risk since your decision comes with many disadvantages. There are few good DD Brokers but why take a risk when you have many other options! How can we figure out if a Broker is a DD or not? We can check it from his website, or we can ask him from either a live chat or an email. We can also go through the reviews of the Broker and confirm it.
Step 03 – Reputation
When we are planning to invest money in a Bank we check the reputation of the Bank first, isn’t it? Likewise, when choosing a currency trading broker, we need to do a research and check the reviews. Keep in mind that you will not come across 100% positive reviews for any Broker.
Even for the top rated forex Brokers, there are bad reviews. The reason behind is some traders try to blame the Broker when their accounts record a loss from their fault. Also, Brokers with a bad reputation will give bad reviews for the good Brokers as a marketing strategy. You should pay attention whether many traders have complained about the same issue (Slow Execution, Re-Quotes and Difficult to withdraw capital or profit). If so, you should conduct further research.
Step 04 – How many years in the Business
Thousands and thousands of Forex Brokering Firms come into the business around the world and may terminate their business even without returning the money to the traders. So, you should find out how long has a particular Broker been in business. Old is Gold. So, longer the better.
Step 05 – Rules and Regulations
Many governments in the world have committed to guaranteeing the protection of the clients from financial scams and consumer abuses by introducing annual Regulatory Standards. We can ensure our safety if the Broker is under the supervision of a Regulation Institute that he has registered in.
If the broker is going out of hand, these institutes take measures to regulate such issues. Also, if you need to file a complaint regarding the Broker, you can do it through these institutes. That is why it is so important to identify whether the Broker is Fully Regulated or not. Even if he is registered, make sure he is regulated from a good country and not from just a random country.
I recommend you check out my article called, worldwide Forex Regulation Institute list
Step 06 – Spread & Commissions
It is Needless to say that you should choose a Broker with Low Spread and Low commissions. It will directly affect your trade to gain a profit or suffer a loss. Access the website and check if it has a Live Quotes Meter. If so, compare the Spreads of the Brokers and choose one with a lower spread. Visit our Forex Broker comparison pages for more details.
Step 07 – Customer support
A good Customer support platform is a vital feature to be one of the Best Forex Brokers. Availability of Email, a Phone Line, and Live Chat is essential. Before you select a Broker, go and ask a few questions in their Live Chat and check their response times. It is important for you since you need to contact the Broker quickly if the platform freezes or during a withdrawal problem.
Step 08 – Trading Platform
Some Currency Brokers do not provide you with the MT4. So, make sure you choose one that will do so. The more the number of Trading Platforms that he gives you, the better. Especially, if you have the MT4 Web Platform, you can log into your trading account from a computer, from any part of the world.
Step 09 – Safety of Funds
Best Forex Brokers Companies deposit the Funds of the Clients in Special Trade Account inside a reputed Bank. This is for the sake of transparency and the safety of both parties. You can inquire the Broker about the bank that he is depositing Funds. Check whether the Bank is reputed and experienced. There are cases in the past where the Broker firm managers have thrown the clients’ money down the drain by buying properties for their own. If the Funds are deposited in a reputed bank, your money is in good hands.
Step 10 – Funding Method
Even if all the above steps are completed, what’s the use if we cannot fund our account, the way we can. Many Brokers provide you with many ways to fund your account to see if any of the methods suit you. Some of the popular methods are listed below.
We hope you got a complete knowledge about a Forex Broker. For your convenience, we are introducing a few Forex Brokers classified into several types, who are ECN trusted and secure. We invite you to visit our other pages and choose the best Forex Broker for you. Open the Demo accounts of a few Forex Brokers, compare their accounts, experience their platforms and inspect their speeds, by you. Then you can find a good Forex Broker, which is an important feature for you if you intend to become a successful Forex Trader.
If you have any questions, the comment section is open for you, or you can open a thread in the Forum. Like our Facebook page to never miss out on any of the articles posted in the future. We wish you the best of luck, and may you have the strength to be a successful Forex Trader!