1. Regulatory Compliance

Different jurisdictions have different financial regulations. Researching the level of investor protection offered by a regulated broker under the supervision of a reputable financial authority helps traders avoid falling for scams.

Brokers in the EU and the UK are subject to some of the harshest laws; they are regulated by the FCA and ESMA and are expected to safeguard traders against negative balances and enforce closeout margins and leverage limitations.

To ensure that traders’ funds are not used as operating capital, the majority of key financial agencies, including MAS (Singapore), FCA (UK), ESMA (Europe), ASIC (Australia), and CySEC (Cyprus), require brokers to segregate client funds.

Major regulatory bodies around the globe include:

·         Financial Conduct Authority, United Kingdom (FCA)

·         The European Securities and Markets Authority (ESMA)

·         Australian Securities and Investments Commission (ASIC)

·         Financial Markets Authority, New Zealand (FMA)

·         National Futures Association (NFA) and (CFTC)

·         Monetary Authority of Singapore (MAS)

·         Cyprus Securities Exchange Commission (CySEC)

·         Switzerland Financial Market Supervisory Authority (FINMA)

·         Financial Sector Conduct Authority, South Africa (FSCA)

·         Dubai Financial Services Authority (DFSA)

·         The Federal Financial Supervisory Authority, Germany (BaFin)

 2. Spreads And Commission Rate

Pricing or transaction charges are an obvious factor to take into account when selecting a broker. Now that the world’s top brokers are engaged in fierce rivalry, individual investor accounts have access to extremely competitive institutional-grade prices.

When trading forex, several brokers give traders an option between fixed and variable spreads and commission charge schedules. Standard accounts offer bigger spreads but no commission fees to traders, whereas ECN-style trading accounts with flat-rate, round-turn commission rates enable ultra-competitive spreads as low as 0.0 pips.

a.  Account Types

• Variable Spread Account Types: fluctuates with market conditions

• Commission Accounts: Low spreads with flat-rate commission fees, often referred to as ECN-style account types.

• No Commission Standard Accounts : No commission fees are charged on top of the spread

• Fixed Spread Accounts(micro accounts): predetermined fixed spreads remain constant regardless of market conditions

b.     Commission Fees

Commission costs are assessed per side or round turn and are determined by the magnitude of the trade. Traders should search for brokers with cheap commission fees in order to minimize trading expenses and optimize returns on their FX accounts. For instance, round-turn commission fees at Pepperstone are among the lowest of any broker—just $7 for every $100,000 transacted.

• No Commission Spreads : As no-commission account types do not pay any additional commission fees on top of the spread, spreads are wider than commission account types.

• Fixed Spreads :While the average fixed spreads offered by the best brokers are significantly wider than variable spread account types, beginner traders may prefer the constant pricing structure as it is easier to determine potential profits and losses.

c.       Trading and Account Fees

• Overnight Financing Fees: As well as commission fees and spreads, traders that keep leveraged positions open for longer than one day must pay overnight financing fees (aka swap rates). Depending on whether a trader’s leveraged position is long or short, a financing cost that is derived from interest rates will be paid or received.

• Inactivity Fees: If a trader leaves their account dormant, and doesn’t make any trades for a short-term period (usually 6-24 months), many brokers will charge monthly inactivity fees.

 3. Leverage And Margin Requirements

A broker will give traders the highest level of leverage available, depending on the asset class being traded, the broker’s location and regulations, and both. By putting forward a portion of a position’s total value, traders can leverage (also known as trade on margin), which increases both gains and losses on a trade. Although some brokers let traders to manually choose their desired leverage (up to the maximum), many excellent forex brokers do not have this facility.

 4. Deposit And Withdrawals

Initial minimum deposits, deposit and withdrawal methods, and funding fees all vary between brokers. When selecting a broker, it is important to check whether fees are attached to your preferred payment method.

a.  Minimum Deposits

To start trading, brokers require customers to make an initial deposit into their trading account. Some brokers such as Pepperstone do not enforce a specific minimum deposit, allowing traders to test the waters first. Some brokers require very high minimum deposits that may deter some customers or beginner traders.

b.  Common Funding Methods

e-wallet payment methods such as Skrill, Neteller, PayPal and Bitcoin Wallets,Credit cards, commonly restricted to Visa and Mastercard, Bank transfer, wire transfer and broker-to-broker transfer, Deposit and Withdrawal Fees

 5. Trading Platforms

Another consideration is the device you are going to use for trading. While experienced traders may require advanced desktop platforms that mimic an institutional trading environment, new traders may prefer simple software designed for mobile apps. Many brokers also offer web trader platforms that offer the advantage of being accessible from any computer and browser.

•  Algorithmic Trading : The three most popular third-party forex trading platforms are MetaTrader 4 (MT4), MetaTrader 5 (MT5) and cTrader. As well as the ease of use and technical analysis tools, each platform is highly regarded for its automated trading features. MetaTrader’s Expert Advisors (EAs) and cTrader’s cBots allow traders to develop (or download) complex trading algorithms that automatically enter and exit trades and scan markets for opportunities.

• Social-Copy Trading : Social-copy trading is another method of automated trading that may be more accessible to those new to forex trading. While platforms such as MT4 and MT5 offer copy trading through Forex Signals, certain brokers offer account mirroring services through pure social trading platforms. For instance, eToro’s social trading network allows users to copy the trades of more experienced investors while keeping up to date with markets via newsfeeds and community forums.

6. Currency Pairs And Markets Offered

Most brokers guarantee the availability of popular currency pairs like EUR/USD and GBP/USD. A broker that really shines, though, will provide a wider selection of currency pairs, including exotic and minor alternatives. A broker that offers both the major pairs and specialized trading should be taken into consideration by traders.

Most brokers provide a range of additional trading markets in addition to FX. This covers equities and indexes as well as commodities like gold and oil. It is important for a trader to know the markets they wish to trade in and to confirm that the broker provides them. It should be mentioned that authorities may limit what a broker can offer in particular areas by prohibiting certain tradable products (for example, the FCA has outlawed bitcoin CFDs).

7. Account Features

To protect themselves against market volatility and the high risk of forex trading, many investors seek brokers with a range of risk management tools such as order types and demo accounts.

a. Order Types

Order types can help minimise your losses when price movements for currency pairs are not in your favour. Market Orders and Stop Loss Orders are available with all trading platforms, while advanced order types such as Guaranteed Stop Loss Orders (GSLOs) are only available with certain platforms.

b. Demo Accounts

Whether you are a new trader wanting to find an easy-to-use interface, or an experienced investor seeking advanced trading tools, demo accounts allow traders to test trading strategies and familiarise themselves with the trading platform before opening a live account. As traders can practice strategies and test trading robots with real-time market data, demo accounts are an excellent way to reduce the high risk of forex trading. While some brokers allow unlimited access and virtual trading balances, some demo accounts have time restrictions and limited virtual funds.

 8. Trading Hours

Forex trading is a 24-hour operation, with key centres like London, New York, Tokyo, and Sydney setting the pace. However, trading hours can vary between brokers. While many offer standard 24/5 trading, exceptional brokers like IG extend their services to include weekends and out-of-hours trading on indices and key forex pairs such as GBP/USD.

 9.  Customer Service

Getting in touch with your broker should be quick and easy. As well as contact methods, it is important to note the hours of operation. Many brokers will offer 24/5 customer service, with few providing support 24 hours a day, 7 days a week.

Common contact methods include email, phone and live chat. Online live chats are becoming increasingly popular as traders can instantly connect with customer service representatives and have their questions answered.

 10. Execution Speed And Slippage

Forex markets are volatile, thus choosing a broker with fast execution, and minimal slippage is important for trading strategy success. Slippage refers to the difference between the expected price when an order is placed and the actual price at the time the trade is executed. To reduce the chance of frequent slippage, traders can choose brokers with fast execution.

To ensure quick order execution, many brokers use fibre optic cables to connect to major liquidity providers such as financial institutions and banks. Equinix servers in New York and London allow brokers to achieve low latency regardless of the broker’s location, with data centres in the major financial hubs.

 11.Types of Brokers

• Dealing Desk Brokers : Using dealing desks, market makers set their bid/to ask spreads and traders aren’t connected with global liquidity providers. Market makers match orders internally and therefore are the counterparty to any trade.

• No Dealing Desk Brokers : ECN, DMA and STP brokers that offer NDD execution match orders with external liquidity providers, eliminating the need for intermediaries. While ECN and STP brokers both connect traders with major global liquidity providers, STP brokers have control over their liquidity sources while ECN brokers do not. Likewise, customers of DMA brokers gain direct access to markets and can view all available prices offered by different liquidity sources. Sometimes, brokers may offer hybrids of the above execution methods or even different technologies for various trading accounts they offer.