- Regulation is a critical factor when choosing a broker. Make sure your broker is regulated by either the FCA, CySEC or ASIC. In the UK, it’s especially important that your broker is regulated by the FCA, as it is illegal for them to operate otherwise.
- Consider the different Account Types on offer at your broker, most brokers offer swap-free Islamic accounts, and some offer unlimited demo accounts to practice with.
- Choose a Trading Platform and find a broker that supports that platform. MetaTrader 4 is a safe choice as it’s the industry standard and there is a multitude of online tutorials.
- Choose what Broker Type you want. Some brokers offer commission-free trading and are known as dealing desk brokers or market maker brokers. Some brokers charge commission but have tighter spreads, these are known as non-dealing desk brokers or direct market access brokers.
- Always check for additional Broker Fees that may be charged. We always highlight these in our reviews, but common ones are deposit and withdrawal fees and currency conversion fees.
- Find a broker with the Trading Conditions that will support your trading strategy. In the UK, leverage is limited to 30:1 for all CFD products and margin stop out is set at 50% – trading conditions still vary widely between brokers though, so shop around until you find the right spreads and support.
How To Choose A Forex Broker
Forex brokers should be measured by regulation, account options, platform choice, trading conditions, and beginner friendliness.
Regulation
Regulators ensure that brokers have a fair trading environment and anti-money laundering processes, all the while operating strict auditing oversight and ensuring client fund protection. Brokers that are regulated by more than one major regulator are considered more trustworthy.
The major regulators are:
United Kingdom – Financial Conduct Authority (FCA)
Continental Europe – Cyprus Securities and Exchange Commission (CySEC)
Australia – Australian Securities and Investments Commission (ASIC)
These regulators are respected for their commitment to consumer protection, strong oversight and swift enforcement of sanctions on fraudulent brokers.
The FCA, in particular, is considered an excellent regulator and is frequently held up as the global standard for financial regulation.
Be wary of brokers who are only regulated by small island states like St Vincent, Bermuda and the Cayman Islands. These regulatory agencies are not as well regarded as the major international regulators as they give more leniency to brokers and less coverage for traders.
Account Types
Each brokerage will have various account types, and there is a trend in the industry to have fewer account types available than in years past. The primary distinction between account types is between Live accounts, Demo accounts, and Swap-free accounts. Managed accounts are also available, but less common.
Demo accounts loaded with virtual money and do not expose a trader to any risk. Demo accounts allow traders to test the trading platform, customer service, research area, and trading conditions before committing real money. Most demo accounts are time-limited but are easy to reactivate. These are the best demo accounts.
Islamic accounts, or swap-free accounts, are an optional trading account type which allows Forex traders to be compliant with the principles of Sharia law. In Sharia law, interest on loans is prohibited, so swap-free accounts don’t earn overnight interest on open positions.
Platform Choice
When it comes to choosing a broker to trade with, deciding on the right platform can make a substantial difference to a trading career. That said, your broker should support a platform you are comfortable using.
While some brokers have proprietary platforms, others use mainstream trading platforms like MetaTrader and cTrader.
MetaTrader 4 and 5 are the most common CFD trading platforms; however, MetaTrader’s older interface and complex setup make it less accessible to beginners. cTrader, on the other hand, has a more modern interface and is easier for beginner traders to set up.
If you are an experienced trader with a particular software choice in mind, or if you are a beginner seeking to learn more about platform options, we have put together a list of the best Forex trading platforms for traders and the brokers that support them.
All brokers have mobile trading apps, and some will have developed proprietary apps, but a vast majority rely on the MetaTrader software for IOS and Android.
Types of Forex Brokers
Forex brokers fall into two main categories – Direct Market Access (DMA) brokers and Market Maker brokers.
Each broker category can be split into two subcategories. DMA brokers are divided into subcategories called ECN and ECN/STP, and market makers can have a dealing desk (DD) where the broker can alter trades before they are executed.
Pure ECN Brokers
In the DMA category, a Pure ECN (or Electronic Communication Network) broker, will never interfere with your trade, and the only source of liquidity comes from other members of the network. ECN execution will mean that if there is no liquidity in the market, your trade will have slippage, and you may get a requote.
Pure ECNs are entirely free of conflict of interest, but traders should expect requotes, and slower trade execution speeds. The top ECNs brokers are:
ECN (Electronic Communications Network) brokers usually place your orders directly through to third-party liquidity providers, usually large financial institutions or global banks. In a pure ECN environment, traders have direct access to interbank market prices and an accurate picture of the entire trading environment.
ECN/STP Brokers
An ECN/STP broker is an ECN broker using Straight Through Processing (STP) to place trades. With STP your order is sent directly to the counterparty through the Financial Information Exchange (FIX) protocol. The FIX protocol decreases trade execution time, reduces slippage and ensures that traders get the best available pricing. Some ECN/STP brokers will be counterparty to your trade to prevent requotes and reduce slippage.
Depending on the trader profile, or the trade itself, an ECN/STP broker will decide which execution method is in the best interest of the customer.
If there is liquidity available for a particular trade, then STP execution could be used. But if it is better for liquidity to be taken from within the network, then ECN will be used.
This combination of execution types is intended to be able to help traders get liquidity and to execute trades faster. The top ECN/STPs are:
Market Makers
Market Makers, also called Dealing Desks, operate in a very different way. Instead of executing the trade on the market, market maker brokers are the counterparty to the trade, and become, for all intents and purposes, the market. The top Market Makers are:
While this means that there will always be liquidity for any trade, being the counterparty implies that the broker is always trading against its client base and that it profits directly from the client’s losing trades. This creates a direct conflict of interest.
Trading Conditions
Spreads
The spread, set by the broker and measured in pips, is the difference between the buy and sell price of a currency pair. This is the broker’s fee for providing access to the market and it gives traders and idea of how profitable their trades could be.
A trader can also tell from the spread if the buy and sell prices for a currency pair are far apart (wide) or close together (tight). If the spread is 7 pips, that is considered a wide spread, where anything under a 1 pip spread is deemed to be tight.
Spreads on currency pairs differ between brokerages, so to maximise profits, a trader should always find a broker who has the tightest average spreads on the pairs they trade. If you are trading with market execution (such as with an ECN broker), remember that a per lot commission will be charged in conjunction with the spreads.
Leverage
Leverage is capital borrowed from a liquidity provider, via your broker, to amplify the volume of a Forex trade. Leverage is essential in Forex trading because the movements of the market are so small that if there were no way to increase the size of the trade, it would be near impossible for individual retail traders to profit from their trades.
Leverage is presented in a ratio format, e.g. 300:1 – in this case, a trader can increase the size of a trade by a maximum amount of 300 times. It’s important to remember that you will remain liable for all losses on the total leveraged amount of the trade.
Using high volumes of leverage dramatically increases the exposure of the trader to risk, which has led to some regulatory bodies like CySEC restricting leverage to 30:1 for retail traders. The maximum leverage offered varies among brokers, and some may also limit a client’s leverage based on their trading experience.
Trading Assets
A large broker will have many different assets available to trade, including Forex CFDs, cryptocurrencies, equities, commodities, precious metals and bonds. A good Forex broker should have 50+ FX pairs.
Scalping
A Forex scalping strategy is where a trader seeks to profit from sizeable rapid price changes in a short period. Scalping opportunities are usually created when significant unexpected news event happens, or when the equity markets open. A scalper, a trader who employs a scalping strategy, enters and exit trades several times a day, and closes all trades on the day they were opened.
Hedging
Hedging is protecting yourself against adverse price movements that would affect open trades and can be seen as a form of insurance. Direct hedging is a common hedging strategy, where a trader buys a currency pair and then sells the same pair at the same time. Not all brokers allow hedging on their platforms, but most DMA brokers do.
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