Free Comprehensive Guidance On How To Choose A Forex Broker

Free Comprehensive Guidance On How To Choose A Forex Broker

The forex market is an extremely big market that attracts people from all walks of life to get a share of its pie. With over six trillion traded daily, the lure of making money from it is high and this has brought about a number of participants who spot gaps in the industry and make opportunities out of them for profit without necessarily trading themselves.


This includes all sorts of coaches and mentors, market analysts, forex books authors, sales people with multi-level marketing modules, forex brokers, and of course the players themselves – the forex brokers. The most important makeup of these groups can be easily identified out as the market players who are the traders, and the brokers who are the facilitators of the online trading through their trading platforms.


Since you’re the trader, you know yourself better and don’t need discussion. All you need is a working strategy tested over time and proven to make money, trading discipline (good market psychology) and a trading plan.


However, even with all these, its not enough to ensure your profitability in trading. All individual traders must trade through a broker. This is the other piece of your trading journey to have to ensure first your access to the markets and then possibly your profitability.


Who Is The Best Broker


You need a good broker that ensures both the safety of your capital and provides the best trading conditions on their platform. Trouble is the size of the market volume has attracted so many it would be a complicated process who exactly to choose.


Well, we will not give any broker recommendations but we’ll show you the kind to choose. Remember when it comes to your money and where it is at you should never compromise on what night seem like minor inconsequential details. Mind little everything. That means you may need do a thorough due diligence to ascertain facts before committing your capital. Read well their terms and conditions and study their offers and guarantees.


Safety Of Funds

This is a pertinent issue. You must know a how private personal funds of traders are handled by the broker. Almost everyone asks the question: “How safe are my funds?”


In this day and age, it is not enough for brokers to just have segregation between their corporate and client accounts, there must of necessity as a matter of caution be additional layers of safety by engaging a custodian to handle the deposit and withdrawal process for their clients. Look for brokers who offer these additional layers to protect trading funds.


  1. Segregated Accounts

In Forex trading, a segregated account is an important term because it indicates that your funds as a client are kept separate from your broker’s core banking account. It also means the brokerage foregoes the right to use the trading capital of their clients for any other purpose except to satisfy margin and trading requirements.


Why does this matter?


Oh sure does it! The 15th of January 2015 will long be remembered as it changed the way forex trading is handled. On the infamous day, the Swiss franc shock reverberated through currency trading firms around the world that unforgettable Friday, wiping out many small-scale investors and the brokerages that cater to them and forcing regulators to take a closer look at the sector.


Some major banks also lost out when the Swiss National Bank scrapped its three-year-old cap on the franc against the euro EURCHF=EBS without warning the day before which was a Thursday, including Britain’s Barclays BARC.L which apparently lost “tens of millions” of dollars.


Retail broker Alpari UK filed for insolvency, while New York-listed FXCM Inc FXCM.N which was probably the biggest forex trading platform had its clients lose $225 million and had to seek loans to stay in business. So catastrophic was the event that some broker resorted to using their clients’ deposits as collateral to secure liquidity, which resulted in negative balances.


They lost the financial capacity to cover client liabilities and only managed to return pennies to them. If client equities have been fully segregated, their funds would have remained intact even when a brokerage becomes insolvent.


Besides that, the segregation of funds does come with more advantages like;

It provides customers with the assurance that if anything happens to a broker, their money remains safe.

It prevents any opportunity for pilferage from employees or company directors

It helps automate bank transfers both inbound and outbound

It gives customers more control over their money

It ensures easy access and withdrawal of funds

It also protects the brokerage from unnecessary risks

Most importantly, segregated accounts improve transparency and help a company better mitigate liquidity risk. A client can withdraw a substantial amount without affecting the brokerage


  1. Custodian Agreement

Another way that brokers could have prevented a collapse from the 2015 event is by opening a custodial account. This is essentially an escrow account that is established under a client’s name and administered by a financial institution that acts as the custodian.


It holds assets and securities on behalf of the clients, as well as credits or debits the account for losses or profits within 24 hours of the end of the trading day.


If you trade with a broker who has an agreement with a custodian, your funds are protected against the risk of insolvency.




Your account is protected against unforeseen events and any management strategy fails a broker makes


You’ll receive clear and concise information regarding your equity and not a jumbled report of brokerage funds


  1. Insurance

Different brokers offer clients different insurance coverage. Some cover individual investments to a certain amount, while others ensure clients from unsavoury risks taken by company staff and/or the account custodians. These risks include negligence, omissions, and fraud.


  1. Negative Balance Protection

When you lose more money than you have in your account, you’re basically looking at a negative balance. Your broker will require you to deposit more into your account or they’ll do any means necessary to collect what you owe them.


Negative balance protection ensures your broker can handle such a situation when it arises.


Say your capital is $1,000 and you traded with a 5:1 leverage, giving you a position of $5,000. If the price drops 7% due to market turbulence, you’re looking at a loss of 35% or $1,750. This means you lose your capital and owe your broker $750.


If negative balance protection is in place, you won’t lose more than your capital or the amount deposited. This is because each time your account balance becomes negative; it will be automatically adjusted to zero.


By looking into segregated accounts, custodian services, insurance, and negative balance protection, you can ensure that you’re trading with a broker fully capable of protecting your account.


Trading Styles Supported

Some brokers don’t allow scalping while others do not allow trading around high impact news events. Some still do not permit hedging. This may not suit your trading style and you need to consider the different trading terms and conditions for trading before you open an account with a broker


Leverage and Margin

Brokers offer leverage as low as 1:1 and as high as 1:1000. Of course this depends on the broker and their location at times as some countries are more restrictive on maximum leverage brokers are to offer their traders as a way of protecting the trader. So you can access a variety of leverage amounts depending on a broker.


What leverage does is to give you borrowed capital so you can control a value on a position that you wouldn’t with you own small capital. For example, if you deposited $1000 in with a broker that offers leverage of 1:500, you are allowed to hold a position with a value of $500,000. This greatly increases your ability to make big money with a small deposit, but so is the negative outcome – you can lose so much money on a single position. Either extremes are magnified significantly.


Deposit requirements

Different brokers have different initial deposit requirements. It can be as low as $50 to as high as $10,000, of course depending on the different account types they offer. A new trader trying out on a live account can use a smaller amount to learn from a live account to get a feel of the emotions that come with trading real money to boost their confidence. This is off course possible with good leverage. The low initial deposit requirement is also good for those that can’t afford funding medium sized accounts but would love to trade.


Type of broker – ECN or Market maker

This is extremely important. Some brokers are known to manipulate price to disadvantage the traders because they are basically hedged against the traders’ position in the market. What this means is that the broker is trading against their client. The traders’ loss means the brokers gains. This never allow you to have a fair market environment to trade profitably. Go for the ECN brokers and avoid market makers.


Spreads and Commissions

Brokers don’t ask you directly to pay for trading on their platforms. Rather, they charge in the form of spreads which is their commission. Some charge a particular standard amount per standard lot depending on the type of account one is trading. speaking of spreads, have you ever noticed that when you clicked “BUY” at a certain  price your order was instead filled at a price higher than where price is at the moment of your order?  You know what caused that? Its “spreads”. That’s the brokers commission on your position.


There are two prices indicated on the chart: one is the ask and the other bid price. The difference between the ask and bid prices of each currency in a currency pair is the cost of the transaction or the spread. Its calculated in pips. The spread is usually calculated by pips.


Execution Speed

During some market conditions, price can move so fast. You would need a speedy execution to be able to be filled in at or near the price you desired. Some brokers platforms experience some lag between execution and actual filling of the trade which is costly to the trader. Some brokers have platform freezing issues, several re-quotes, all of which can impact negatively on the trader.


This is especially crucial for a scalper looking to quickly get in and out of the market. If you’ve traded before, then you probably have come across what’s known as slippage. This is a killer as it can easily wipe away your entire capital depending on the intended position size. So check out the speed and reliability of a broker’s trade execution as this could preserve you from slippages. You may need to have a practical feel of it by opening and trading a demo.


The Trading Platform

Brokers offer different trading software. Some are online while others are desktop and mobile apps. These trading software are not only trading platforms but also analytical tools. You will need a platform that is equipped with different kinds of charts, time-frames, indicators, different trade entry types, compatible with different custom-made indicators and expert advisors, and one that has all the tools you need for both technical and fundamental analysis.


Most brokers offer the metatrader4 and 5 (MT4 and MT5) platforms which meet all the conditions above, while some even allow trading through the Tradingview platform which in my estimation is the best platform for technical analysis. Don’t forget to ensure their platform is supported by your computer or or mobile gadget for your trading convinience.


Deposit/Withdrawal Procedures

The broker you partner with should allow you to fund your account and withdraw your profit smoothly and quickly. We highly recommend that you run a comparison on the deposit and withdrawal fees of some brokers to see which ones impose lower fees. The broker should have different deposit and withdraw methods such as debit or credit card, bank wire, western union, digital wallets, prepaid cards, money order, Bitcoin, among others


Minimum Lot Size Provision

Positions on the market are placed in sizes known as lots. A lot in the financial markets is the number of units of a financial instrument bought on an exchange. It’s easier to say 1 lot than $100,000 or 100,000 units. These number of units are determined by the lot size. The availability of the different lot sizes depends on the type of account one holds with a broker.


Most brokers offer two basic account types: standard and Mini accounts. This is an important factor to consider when choosing a broker because it impacts directly on your trading when it comes to risk. Trading is about managing risk which is usually measured in percentages. For example, you may want to risk 1% of your capital per trade on a $100 account. This will not be possible on a standard account as just one pip would be equivalent to 10% of the account.


So if your capital is small ad you look to trade several instruments, it’s important that you choose a broker with account types that grant you flexibility. You’ll therefore need a broker that offers not only standard accounts, but also mini accounts, micro accounts, and with some brokers nano accounts

  • Standard account: The standard size for a lot is 100,000 units of currency. 1 pip is usually worth USD10
  • Mini account. A lot is 10,000 units of currency. 1 pip is usually worth USD1
  • Mini account: (also referred as 0.1 lot) – 10.000 units of any given currency.
  • Micro account (also referred as 0.01 lot) – 1.000 units of any given currency.
  • Nano LOT (also referred as 0.001 lot) – 100 units of any given currency.


Reviews About The Broker

Consider reading the reviews about the broker you intend to trade with before you trust them with your money. You want to learn from the experiences of other traders that have traded with the same broker before rather than risk and learn from your own. There are some sites that are dedicated to reviewing brokers and even attract the reaction of the brokers towards comments made about them. You’ll learn more about the hidden side of these brokers from such sites than they are willing to reveal in their sales pitches. One of such sites is



Find out if the broker is regulated or not. The regulating body is also important as some regulators are stronger than the others. For example, EU, Britain, and US regulations are more stringent and strict. The stricter these are the safer it is for a client’s capital. If a broker is not regulated by a strong body you stand the risk if losing your capital is high. Stronger regulatory bodies require brokers to segregate accounts and offer a remedy in the event that the broker closes business.


Regulated brokers are required to have their accounts audited regularly, as mandated by the regulatory authority. This ensures that they always maintain sufficient funds in their accounts, to fulfil their clients’ transaction needs. In case they go broke, there are established practices to compensate client funds. Regulated brokers are required to segregate client funds from company funds at all times meaning that if the company goes under, client money is not affected.


Customer Support

You need a broker that offers customer support 24 hours a day. There are times when you really need to know something before you enter a trade. Sometimes it’s a problem you’ve encountered in the midst of your trading and no one can help but the broker themselves. But its late in the night and you really need to communicate to the broker. You will need a broker that is available for reach as and when you need their support through email, direct phone line, live chart, among others. Also check if support is offered in a language easily understood by you


Bonuses and Promotions

There are numerous brokers in the market unlike in the past. The competition for clients has increased and caused many to give different promotional offers and bonuses to attract clients. These include real live account opening bonus (welcome bonus), deposit bonus, etc. Make a comparison of different brokers’ bonuses and promotions by looking at the terms and conditions attached to the offers to help you choose the right Forex broker.


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