Before you begin trading Forex it is necessary to choose a Forex broker and set up an account with it. For those who are new to the Foreign Exchange Market, a forex broker is a company acting as an intermediary between buyers and sellers that deal in currencies. Otherwise said, forex brokers are companies that buy and sell orders according to the traders’ decisions. In general terms, they generate profits by charging a commission or a fee for their services. The main source of income for most brokers is the spread (the difference between the bid and ask price) that they offer to traders. However, there are brokers that usually charge investors a fixed amount per trade which is defined as a commission. 

Taking into account that every broker is slightly different, we consider the broker selection process as an important prerequisite for successful trading. Once you select a broker that will give you a good deal everything else leading to the achievement of good results depends on your personal trading skills and knowledge. The existence of thousands of Forex brokers offering their services to individual traders is the main reason why we want to provide you with a comprehensive list of the most important factors contributing to the choice of the right broker.

When choosing a forex we recommend you to pay attention to the following features:

1.Regulation of the Forex Broker

Due to the nature of the Foreign Exchange Market – unregulated market without central   exchange – and the fact that forex trading involves large amount of money, it is important for traders that their money is handled by reliable brokers. This is why certification of forex brokerage firms is so important. So, make sure that the prospective Forex Broker you want to contract with is registered with the corresponding regulatory agencies.

If you prefer a FX broker based in the United Kingdom, it should be registered and regulated by the Financial Services Authority (FSA).  In the case of the U.S., brokerage firms should be registered as a Future Commission Merchant (FCM) with the Commodity Futures Trading Commission (CTFC) and a member of the National Futures Association. In case that you are interested in a forex broker based in another country and you can verify its regulation status by checking on the web sites of the local regulatory authorities.

2. Customer Service

The forex market differs from the markets of stocks and the other financial instruments by the fact that it is open 24 hours. As a result 24-hour support provided by brokers is a must.

Sometimes the forex market is extremely volatile and things change in seconds. In such cases as well as under normal market circumstances if you have a question about order execution or a closed order, you have to get answer by the customer support team no matter what time it is.

Before opening an account we recommend you to choose several brokers and contact their customer support departments in order to test how quickly they will respond to your inquiries and how they will satisfy your information needs. If you do not get a quick answer supported by valuable information, you should not trust them with your money.

3. Initial deposit and the presence of Mini/Micro Accounts

The majority of brokers offer their clients the opportunity to open very small “mini-accounts” or in some cases even smaller “micro-accounts” with an initial deposit ranging from to 0. There are also forex brokers whose initial deposit requirements for standard accounts begin from 0. These types of accounts and the low initial investment required by brokerage firms are a great opportunity for beginners to get started and test their trading skills and knowledge, and gain experience.

4. Online Trading Platform

The online trading software offered by brokers must be professional and easy to use because you do not want to get confused with its features while trying to make a trade. It is important for the trading platform to allow you to quickly enter and exit the market. Any reputable and sophisticated broker will offer the ability to trade on demo account, which possesses the same characteristics as the live trading account. We recommend you to use a demo account because it will give you the advantage to test out the trading platform and decide on whether it corresponds to your trading preferences.

When examining a given online trading platform you must pay attention to the following details:

• Make sure that you are able to view real-time currency exchange rate quotes;

• Check out the presence of an account summary showing your current account balance together with the realized profit and loss, margin available, and any margin locked in open positions.

The trading platform that you will use could be either Web based (in Java), or a client-based program that you can install on your computer. The version you will choose depends on your personal preferences:

• If you choose the client-based software, it will only allow you to trade on your own computer unless you install the software on all computers that you use. Usually, this version runs faster, but is has certain operating system specifications.

• If you prefer to use the Web based version of the trading platform, which is hosted on your broker’s website, you do not have to install any software on your own computer. In this case, you will be able to log in from any computer that has an Internet connection. Java-based trading platforms are considered as more safe and reliable because they tend to be less vulnerable to hackers’ attacks and viruses than the “download and install” software.

Once again, we strongly recommend you to open Demo account before you risk your money by directly opening a live trading account!

5. Trading Tools

Another step towards choosing the right broker is to check what kind of trading tools and analysis are provided to you. Different forex brokers will offer different trading tools and tips and that is way careful consideration is necessary. Usually, good forex brokerage firms should offer real-time trade alerts, technical analysis tools, real-time charts, and outstanding website support.

6. Spread Level

In forex trading the spread is defined as the difference between the bid (selling) and ask (buying) price of any given currency pair. To illustrate, if we have the case where EUR/USD 1.3890/1.3895, it means that we can buy 1 EUR with 1.3895 USD or sell 1 EUR for 1.3890. As a result, the spread is (1.3895 – 1.3890) = 0.0005. Considering that the majority of forex brokers do not charge commissions on their client trades, they make profit out of the spread, which can be characterized as a transaction cost for traders. Consequently, low the spreads are associated with cheaper service which gives traders the advantage to generate higher profits. Thus, you are supposed to choose forex brokerage that offers lower spread.

7. Leverage Level

The lever of leverage varies for different forex brokers. When searching for the appropriate broker you can see leverage starting at 50:1 and reaching 700:1. Remember that leverage can make you either super reach or super broke and do not be so optimistic because in most cases it will be the latter. Although, the higher level of leverage will give you a greater chance for higher profits, if you are an inexperienced trader, we do not recommend you to trade with too high level of leverage.

8. Minimum Transaction Size

The size of one lot may differ from broker to broker by the amount of traded units. There are lots with size of 1,000, 10,000, and 100,000 units. A lot consisting of 100,000 units is called a “standard” lot. A lot consisting of 10,000 units is called a “mini” lot. A lot consisting of 1,000 units is called a “micro” lot. With some brokers you are allowed to create your own unit size as a result of the fractional unit sizes they offer. 

9. Rollover Charges

Another important factor you should consider is the amount of rollover fees that every broker charges for positions held overnight.Rollover charges are determined by the difference between the interest rate of the country of the base currency and the interest rates of the other country. The greater the interest rate differential between the two currencies in the currency pair, the greater the rollover charge will be.

10. Reputation of the Broker

Before you make your final decision about the forex broker that you will open a live account with, we recommend you to check out its reputation. The most popular and easy way to do this is to do a Google search with the name of the broker plus the words “complaints” and “comments. Once you get the results of your search check around the opinions of the traders who have had experience with the given broker and then take your final decision of whether to get started with it.