Forex market is so competitive that if you look for “Forex Brokers” on google, you will get more than 7 million results.
So how to choose the best broker? Before depositing any amount of money, it is important to understand the structure of 2 different types of Forex Brokers: dealing desk and no dealing desk.
Dealing Desk Brokers
Dealing desk brokers are also called market makers because they literally create a market for their clients. When you open a new trade, they don’t forward the order to the interbank market, but they take the other side of your trade. It’s like that they say: “ok, you want to buy this, I’m going to sell it to you without going through the interbank market. If you win, I give you the money, if you lose, I take your money”.
If you think about this, it can be a significant conflict of interest. Your broker has an interest in seeing you losing on the trade.
From one side, it is true, from another side you need to think that the broker processes so many transactions everyday that probably when you are buying a currency pair, there are hundreds or thousands of people that are doing the same or taking the opposite position.
So the broker bets against everyone, not only you, having a profit in the long run because of the spread.
So my advice is: if you are going to deposit an amount that goes from 1 to 5.000 dollars, you can be 99% sure that your broker will not even notice you, but if you are going to deposit a larger sum, you may want to have a look at the second type of forex brokers: the no dealing desk.
No Dealing Desk Brokers
These brokers really act as intermediaries because they automatically connect you with other participants, that can be banks, retail traders, hedge funds or even other brokers. The only problem with this category of brokers is that they usually charge a commission for trading, like 5 dollars for each lot traded, or they have a slightly higher spread, so it is not recommended if you have a very small account with just a few dollars.
So which one should you choose? At the very beginning, I would say that you can choose a dealing desk broker because they have no commission but the spread. When you will have a large sum to invest, you may consider to open an account with a no dealing desk broker.
6 Criteria to select the best Forex Brokers
Now that you know the difference between dealing desk and no dealing desk Forex Brokers, we can check the criteria to select the bet ones.
The first and most important consideration when selecting a forex trading broker involves determining whether or not your funds will be secure in the broker’s hands. So the first criteria is: regulation.
You want your broker to be regulated by a national institute. This normally assures that the broker is legit and your money is in good hands because most of these regulatory bodies also provide a scheme to refund your money in case of bankruptcy or any unpleasant surprise made by your broker.
These are the most important and common regulatory institutes:
|United States||National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)|
|United Kingdom||Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)|
|Australia||Australian Securities and Investment Commission (ASIC)|
|Switzerland||Swiss Federal Banking Commission (SFBC)|
|Germany||Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)|
|France||Autorité des Marchés Financiers (AMF)|
|Canada||Autorité des Marchés Financiers (AMF)|
If you don’t know the one in your country, you can easily google it.
Second point to choose a Forex broker is: domicile.
This is a matter of security of your money, just like the first point.
Not to offend any country, but you want your broker to be in a stable, well developed and financial secure Country, because if there is any problem with your broker you can count on a solid legislation and infrastructures to recover your funds.
Third point is: spread.
This is very easy to understand. Would you choose a broker with a large spread or a broker with a tiny spread? Of course you are trying to minimize the transaction costs so you are more willing to choose a broker with a low spread.
4. Trading platform
Another point is: trading platform. The trading platform is where you study the charts, you do your work and your researches before opening a position on the Forex market. You will use the broker website just to open your account, but once you are playing the game, you will hardly ever visit their website again, because you will jump directly to the trading platform. So of course this is an important point and you need to feel confident with the platform that your broker is providing to you.
5. Customer Service
Next point is: customer service. Of course you don’t want to give your money to someone who is replying to your emails after a week or don’t even speak your language. Generally, before opening an account, you should have a phone call or a chat with an assistant, so you will have an idea of their customer service.
Last criteria to choose your broker is: reputation. You don’t really want to give your money to a broker that has many bad reviews. You can look for customers feedback on google or you can use this website: http://www.forexpeacearmy.com/
This website collects feedback from traders in order to give to new traders a better idea of the broker, before they make a deposit. Anyway you will always find bad reviews, even if the broker is perfect, so don’t focus on 2 or 3 negative feedback if all the others are positive.
Now you have a guide to choose among thousands of Forex Brokers, hope you will make the right choice 😉