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Choosing an FX broker can be a daunting task for the newbie trader and fledgling fund manager.

So over the next two weeks, I’m going to share some practical tips to ensure you make the right choice. There’s a lot of information to consume, so this series will be split into two parts. Here’s part one.

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So what are the key points that you should consider when choosing an FX broker? Let’s cover three to start of with.

1. Security

Paramount when choosing your FX broker is to ensure that the broker is secure. The last thing you want to do is transfer your trading money to the broker only to find out that their systems are unreliable and your cash is at risk.

There are literally thousands of internet-based FX brokers out there offering you the ‘best’ dealing rates and services. However, you should check that they are real and not scams.

All brokers must be regulated. The jurisdiction and regulatory regime in which they operate provides varying degrees of comfort.

A regulated broker in one of the major jurisdictions, such as in the UK, EU and USA provide a high degree of comfort, as these regulatory regimes are the toughest in the world.

Unfortunately, as history only too clearly demonstrates, “brokers can go broke”.

You will find that many brokers do not actually “segregate” client money (certainly not professional client money). So in the event of a broker failing your account money can be at risk. Therefore, choosing a broker which is highly regulated and licensed in a reputable jurisdiction has to be a major consideration.

You should choose a broker that is not operating a “white-label” broker platform. The more that you can do to lower your broker risk profile the better.

2. Transaction Costs

Regardless of how good of an FX trader you are, you will always pay a transactional cost when placing trades. Spot FX transactions are considered “commission” free. However, you will pay transactional costs via the bid and offer spread that you deal at.

The more retail orientated FX brokers apply relatively wide spreads, whereas with the more institutional FX brokers the spreads can be narrower.

Of course, the size of your transactions and the trading volume that you create will have an influence on which brokers will offer you accounts. Certainly, to trade with an “institutional” broker you need to be considered as professional/institutional clients.

The regulated investment fund is considered professional and institutional.

This said, sometimes you may have to sacrifice obtaining the best transactional spreads/commissions in order to trade through the best and more secure brokers. It is a balancing exercise between choosing the best dealing rates and security of the broker.

3. Deposit & Withdrawal

Important when choosing your FX broker is to ensure that depositing and withdrawing funds is efficient and seamless.

A good FX broker will allow you to deposit funds and withdraw your earnings hassle-free.

Brokers should have no reason to make it hard for you to withdraw your profits, the only reason they hold your funds is to facilitate trading.

Should you experience delays in withdrawing funds then this should ring an alarm bell. It should not happen.

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Next week, I’ll share four more tips on how to select the right Forex broker. In the meantime, if you need any assistance in establishing your own investment fund, please get in touch.


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