If you are unfamiliar with forex trading and are looking for your first forex broker, this is your guide. I’ll give you the most important things to look for and show you the little tricks that expose hidden expenses and brokerage tactics.
To find the best Forex broker, you will need to research it, do small tests, ask about hidden policies, and find out if they are regulated. Also decide if an ECN or DD intermediary is better.
This guide will go through all the steps in detail.
Check out the reputation and reviews of the runners
This is the easiest part of the whole process. Do some research on the internet about the runners out there.
The first thing to keep in mind is how long the broker has been in business. In fact, it is quite easy to start a Forex brokerage in some parts of the world.
Therefore, if an agent has only existed for 6 months, it is not a good idea to have the lab rat that will help you solve all the errors in your systems.
Another good way to check a broker’s reputation is to ask full-time or active traders with which broker they trade. If an active trader has been with a broker for many years without any problems, the broker is probably reliable.
Also read through forums, Facebook groups, or any other place where marketers spend their time. See what brokers these traders like and why.
However, keep in mind that many unsuccessful marketers want to blame their shortcomings on everyone instead of taking responsibility for their results.
Therefore, some runner reviews may be negative, when it is not the runner’s fault. Stay tuned for reviews that say things like:
- The corridor continues to trigger my stops
- The agent took me out of a trade
- The broker is negotiating against me
While these claims could certainly be true, it is usually the sign of a trader not wanting to take responsibility for their trade.
Learn to read between the lines.
Change your demo account
Most reputable brokers offer a demo account. So take this opportunity to see how your trading platform works.
Because you’re trading with gambling money, you can do platform stress tests and do things you probably wouldn’t do with real money.
Swap large batch sizes, see what it takes to trigger a margin call, experiment with different types of orders. See how difficult it is to get into operations quickly and try to get out of operations on other devices, such as your phone.
In other words, try to break your trading platform. This will expose the strengths and weaknesses of the platform.
Try customer service
Another thing you can do in your preliminary research is to contact customer service and ask questions. It doesn’t matter too much what you ask of them.
This is just a test of your customer service.
All you are looking for is:
- Response time
- How well they communicate
- With what answer do they answer your questions
Ask all the questions you have in your head, no matter how basic you think they are.
Of course, there are companies that have excellent customer service before you become a customer, and then forget about yourself after you sign up.
But if you try them beforehand, they are much more likely to also have excellent service after you become a customer. If they have terrible service even before being a customer, this broker should be avoided.
Be sure to try various methods of contact, chat, email, and phone.
Find out how your account balance affects batch sizes
The next thing to keep in mind is how much money you have to exchange.
A trader who has $ 5,000 venture capital will typically choose a different broker to someone who is at $ 500,000 at risk.
This is mainly due to the minimum batch size. Runners with minimum account sizes typically allow minimum batch sizes, such as nano batches or micro batches.
On the other hand, runners with higher minimums can only allow mini batches as a smaller batch size.
If you resize batch sizes that are too large for your account, you are guaranteed to want the account.
For more information on how Forex lot sizes work, watch this video.
Are there trade restrictions?
Some brokers do not allow certain types of trading. For example, some brokers do not allow you to scalp or use commercial robots.
Most traders do not make the scalp anyway. But if this is your bottleneck, you should ask potential brokers if they restrict any kind of trading to their accounts.
Check hidden fees
There may be some commissions that you only know after you have deposited money into your account. Be sure to ask about them before open an account.
These may include:
- Unusually high transaction fees for withdrawing / depositing money
- Inactivity rates
- Minimum activity rates
- Monthly fees to keep the account open
You should avoid brokers charging these fees at all costs. There are brokers who do not charge these commissions.
Find out if a runner is regulated
Then find out if a broker is regulated or not. Sure, they can still do shady things even if they’re regulated, but it’s much less likely.
You can usually find the regulatory body at the bottom of your website or on the “About” page. There is usually an identification number that identifies the agent.
But don’t stop there.
The agent may post a fake ID or use someone else’s number. This was what they were doing in the Shiroma scam.
So grab the ID number and contact the regulator to see if it’s a real number. You can usually search by the name of the broker or identifier on the regulator’s website.
In addition to seeing if the ID number matches the runner’s name, you can find out if there are any violations or legal actions against the runner.
If there are actions against the runner, be sure to read them to see how serious they really are. Sometimes they are minor and can be ignored.
The broker does not have to be regulated in your country, but understand what protection you have in the broker’s country, if you decide to do business with them.
Dealing Desk or ECM?
Another question people ask when choosing a broker is: Should I go with a desk broker (DD) or an electronic communications network broker (ECN)?
If you are just starting out, a DD runner is usually a better option … in most situations. Most of them only charge a small spread (instead of a commission) and usually have minimum batch sizes favorable to smaller accounts.
Another advantage of a DD broker is that they can take over the other side of your operations. Some people see this as a negative aspect, but the advantage is that it provides you with additional liquidity that you may not get on the open market or through an ECN.
As you get better at trading and building your account, consider moving to an ECN broker. They can usually offer narrower differences and the commission structure usually makes larger trades cheaper than with a DD broker.
An ECN broker transmits its operations directly to a commercial match market, eliminating its interest in any of its operations so that they do not take the opposite side. This provides you with an extra layer of protection against trade manipulation.
You can see our options for the great Forex brokers here.
Try the removal process
This is a very important step and is part of the 3-step runner testing process. Once your research has identified a potential agent you want to negotiate with, don’t give them all your money at once.
Deposit only a small amount of money, an amount you are willing to lose.
Then wait a couple of weeks … do some small business … and get some money out of it. Doing so will show you how easy the process is and whether the broker has any hidden charges associated with the withdrawal.
Doing this test may seem a little tedious, but it’s a small price to pay to make sure you don’t get stuck later.
After you have gone through all the above steps and are satisfied, you can be reasonably sure that you have a solid runner and that you will be able to move forward at full speed with the trade.
How to avoid scams (the biggest red flags)
Do not suffer the same fate as the previous person. Here are some things to look for in counterfeit or scam agents.
If someone randomly contacts you via email or a social networking site and tells you that they are an intermediary and offers to manage your money, run away.
Real brokers do not manage money, they are only engaged in the execution of trades.
Another red flag is when a broker charges a large commission to withdraw money. I have heard that this can reach 25%. Another variant of this scam is that they tell you that you have to pay “taxes” or a “negotiation commission” to withdraw your money.
Then read the broker’s website. If they seem to have used Google Translate, run away. An actual broker will have a well-written website that clearly explains what they do.
Finally, consider the Forex “brokers” who insist on cryptocurrency as a source of funding.
Currency trading involves trust currency trading, so you should fund your account in fiat currency. Scams call for cryptocurrency because it is non-refundable.
Final thoughts on how to choose the best forex broker
One last word of wisdom … if you have a significant amount of money, don’t put it in any broker. Consider using 2 or even 3 runners.
What constitutes a “significant amount of money?”
This is for you to decide.
But keep that in mind … if that broker failed and you lost all the money from that trading account, how sad would you be? If you would be very sad, consider using several runners.
If you go with a broker that has been around for a long time and is used by many active traders, you should be safe.
But do your research before sending your money.
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