Most recently, I wrote about how to avoid getting scammed while buying forex products. Finding a good forex broker is even more important.
I currently have active accounts with several brokers. I won’t name those brokerages in this article. Actually, I won’t mention any other brokerage names in this article. My purpose in writing this article is to help you select the forex broker that is right for YOU, not to tell you which broker you should chose.
If you’ve have already picked a forex broker that you are completely happy with, then you’re done. If you are having trouble deciding which broker to trade forex with, please read on.
From my perspective, choosing a forex broker is a personal decision. First, you need to make a list of what you want from a broker. Some things you will absolutely require, others will be things you want, but can live without.
There are so many factors to consider. There is no way I can list them all, but here are some of the major ones:
What country is the forex broker regulated in? Is the broker regulated at all? Some aren’t. Some will claim to be “self-regulated.” That means they are unregulated, but they aren’t honest enough to admit it. There are a few unregulated brokers that aren’t too badly rated. The problem with this is how do you know they won’t go bad later? Regulation doesn’t guarantee that a broker is a good broker, but at least gives you some recourse if things go terribly wrong. Also, remember that some countries have better regulations than others.
Does the broker allow clients from your country? Not all brokers allow traders from all countries. There was one well-rated brokerage in the UK that I really wanted to open an account with, but they aren’t legally allowed to have accounts from residents of the USA.
What country is the brokerage located in? Many brokerages are multinational. Just because they are regulated in one country doesn’t mean their primary offices are there. Since I live in the USA (most of the time – “Ni hao!” to all my friends in Guangdong Province), I prefer a forex brokerage that is both based in and regulated in the United States. This saves me the effort of getting my passport out of the safe if something strange happens and I feel an overwhelming need to pay them a visit to express my annoyance in person. Don’t trust the brokerage if it claims to be regulated, check them out yourself on the regulator’s website to be sure. There are a lot of “Swiss Brokers” that are about as Swiss as the Swiss cheese that I buy at the grocery store (which is made in Wisconsin).
Can you remember what you need to do next? That’s right! Try to withdraw a small amount of money and see if this is easy or not. If they give you significant problems, close the account, withdraw all of you money, and move on to the next broker on your list.
Assuming the brokerage has passed all the tests you have given to them so far, trade small quantities with them at first. Treat the new brokerage the same way you would treat a new trading system and use the most cautious levels of risk management at first. If all goes well, scale up until you are
trading as you normally would. Watch out for large slippage, excessive spreads, frequent requotes, and all the other stupid broker tricks that somehow end up making traders lose a few extra pips here and there. If you encounter too many problems like this and the support staff at the brokerage can’t fix them, then close the account and try the next broker on your list.
Remember, good brokerages can go bad. Well-regulated brokerages can go out of business with little or no warning. Never let your guard down. Double-check all of your account statements. Keep an eye on the reviews for your brokerage. If you see complaints about withdrawal problems, try withdrawing some of your money to see if it’s a real problem or just an impatient person who likes to complain. If your brokerage is regulated, check the regulator’s website at least once a month to see if there are any new issues.
There is no single perfect forex broker for everyone. If everyone followed a broker selection system like this, then the worst brokerages would quickly go out of business, and the rest would soon realize that they need to work very hard to earn and keep the respect and business of forex traders.
I look forward to seeing what features others consider to be important when selecting a forex broker.