1) Regulations

Regulations is without a doubt the most important point to consider when choosing a Forex broker. With proper regulations, one can rest assured that their funds are in good hands since regulated brokers will have to comply with a set of rules in order to safeguard clients’ funds.

Some examples of regulatory bodies are:
United States of America: National Futures Association (NFA), Commodity Futures Trading Commission (CFTC)
United Kingdom: Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA)
Australia: Australian Securities and Investment Commission (ASIC)
Canada: Financial Transactions and Reports Analysis Center of Canada (FINTRAC), Investment Information Regulatory Organization of Canada (IIROC)
Singapore: Monetary Authority of Singapore (MAS)
Switzerland: Swiss Federal Banking Commission (SFBC)

2) Costs of Transaction

The costs of transaction will have a direct impact on your P&L statement. The following are three common costs of transaction:

Commission – A commission is charged every time a trade is entered. Commission charges are often listed in the broker’s website in the following two ways:

1) Round turn per standard lot: A round turn commission is charged only when a trade is opened.

E.g. Suppose Broker X charges a $10 round turn commission. Whenever a trade is being entered, a $10 commission will be charged. Once the trade is closed, no commission will be charged.

2) Per side per standard lot: Per side commission is charged whenever a trade is opened and closed.

E.g. Suppose Broker X charges a $5 per side commission. When a trade is being entered, a $5 commission will be charged. Once that trade is closed, another $5 commission will be charged.

Spread – Spread is the difference between the ask and bid price. The price level of a Buy trade is determined by the ask price while the price level of a Sell trade is determined by the bid price.

E.g. Suppose the ask and bid price offered by Broker X for EUR/USD is 1.1805 and 1.1800 respectively. If a Buy trade for EUR/USD is being opened and closed before any price movement (essentially buying and selling EUR/USD), then a spread of 5pips (USD 0.0005) will be incurred since EUR/USD is being bought at 1.1805 and sold at 1.1800.

Swap Rate Charges – Swap rate is the interest rate differential between the two currencies in a currency pair. A trader’s account will be paid or charged with interest when trade positions are held past 5pm (EST). The amount paid or charged will depend on the interest rate of the currencies involved. This is best illustrated with an example.

E.g. Suppose Europe has an interest rate of 0% while the U.S. has an interest rate of 1%. If a trader enters a Sell trade on EUR/USD (essentially selling euro and buying dollar) and holds it past 5pm (EST), then in theory, that trader’s account will be paid with interest since the U.S. has a higher interest rate than Europe, thus buying and keeping dollar will lead to interest gains.

On the other hand, if that trader enters a Buy trade on EUR/USD and holds it past 5pm (EST), then in theory, interest will be charged to that trader’s account since buying and keeping euro (lower interest rate currency) while selling dollar (higher interest rate currency) will lead to interest loss.

3) Ease of Deposits and Withdrawals

The first thing to take note of is the type of deposit and withdrawal options the broker supports. More options can provide convenience to the trader. The common types of payment options are local bank transfers, bank wire transfers and credit/debit card payments. Other payment types include e-wallets and cryptocurrencies.

(Tip: If you are using bank transfers to fund your account, check with your bank if there is any fee or charges that apply.)

The next thing to take note of is the amount of time it takes for the broker to approve your withdrawals. Some brokers have the tendency of approving deposits fast but take a long time for withdrawals to be approved when in fact both should be fast.

Last but not least, one should always check if the broker charges a fee for deposits/withdrawals.

4) Types of Trading Platform

The most commonly offered trading platforms are MetaTrader 4 (MT4) and MetaTrader 5 (MT5). Many brokers will provide them as a choice of trading platform. Personally, I have been using MT4 almost all these while and I find that it is user-friendly for beginners. Due to its popularity, you can simply search for your favorite indicators online if they do not come with MetaTrader itself. If you would like to code your own indicators or trading robot (aka Expert Adviser), both MetaTrader 4 and 5 support this functionality as well although it is said that MetaTrader 5 is more user-friendly for developers. Moreover, you can search for guides and tutorials on MetaTrader online.

Some brokers also offer their in-house trading platform. A few questions one should ask before going for the in-house trading platform are:
1) Is demo trading available to the platform?
2) Is there a tutorial on how to use the platform?
3) What are the technical indicators available to the platform?
4) What is the minimum lot size that can be entered through the platform?
5) Does the platform keep a record of your trade history?

5) Customer Support

Customer support will come in handy once you start facing issues with depositing/withdrawing funds or problems with the platform not having connection etc. Since the forex market is open 24-hours a day for 5 days a week, it is only ideal that the broker provides customer service 24-hours a day as well. Is there a customer support number one can call in to or an email address one can write in to? Prompt reply from customer support is vital to a trader. Imagine having several trade positions running and all of the sudden the platform hanged. You contacted customer support and they only get back to you the next day.

(Personal experience: I once traded during the European Central Bank monetary policy meeting, have a trade entered and the platform got disconnected. I immediately send in a message through the broker’s website and the support team got back to me within an hour with the problem fixed.)

Note that some brokers will provide an account manager to you once you open up a live trading account. Some of these account managers are genuinely there to help while others are there to sell you investment products. These people will contact you through phone or email but if they insist to call you, chances are they may have something up their sleeves.

(Personal experience: When I first started trading and opened a live account with a sleazy broker, my account manager called me, pitching an Apple investment to me for like 15 minutes before I forcefully hung up on him.)


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By Gim Hong Lee

Gim Hong has been a full-time currency trader for more than 2.5 years, focusing on day and swing trading of major currencies and their crosses. He is a frequent contributor of currency and economic analysis in Forex Trading Asia. Graduated from Columbia University in the City of New York with a bachelor’s degree in applied mathematics and statistics, the nerdy side of Gim Hong enjoys learning about data analysis, machine learning and their applications in currency trading.

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