Have you ever heard the expression "brokers make you broker"?
Well, when it comes to forex brokers, that statement sometimes has a little too much truth to it. Many forex brokers, you see, are stricken by a conflict of interest that makes your average stock broker look like the staunchest ally you ever had.
This conflict of interest is created by the fact that many forex brokers “make the market” that you’re trading, when you trade on their websites. Making the market means that when you’re selling, they’re buying, and when you’re buying, they’re selling. This brand of forex broker, often referred to as a dealing desk broker, acts as the “counterparty” to your trades, and thus may have interests that run counter to your interests.
Please do not take this to mean that forex brokers who are market makers are all scammers. The market maker model has its good points.
The point for you as a forex trader, though, is to make sure that you understand how and why choosing a currency trading broker wisely and with eyes wide open is an absolute must.
Read our Forex Broker Reviews
In Praise of Forex Brokers
Now that you’ve received fair warning that not all forex brokers are automatically rooting for you to win at FX trading, it’s time to tell you why online forex brokers that create a quality product deserve your praise, admiration, and maybe even your business.
Excellent forex brokers are to be commended for, among other things:
-- Providing individual FX traders with access to a dynamic global market once reserved for banks and wealthy investors
-- Offering the ability for individual traders to trade smaller lot sizes, such as mini or micro lots, which also drastically increases access to the forex markets for the “little guy”
-- Giving the “little guy” a chance to learn how to trade forex for free, with no obligation, through a practice account that has all the features of a live money account
This idea of access is probably the most revolutionary thing about the proliferation of forex brokers that has occurred thanks to the Internet and the technologies that go with it. Without online forex brokers, none of us “little guys” would even be in the game!
The other fantastic thing about online forex brokers, these days, is that there are so many of them. The consumer definitely has a wide variety of choices. You can choose a forex broker based on which one gives you the most research resources, which one has the best charts, which one has the lowest minimums, or any number of other criteria.
If you like universal access and robust choice in your financial products, you’ve got to give the modern crew of forex brokers their due.
How to Choose a Forex Broker (Or Two, or Three)
For the beginning forex trader, we recommend starting up at least three practice or demo accounts at three different brokers. This way, you can make a fair comparison and decide which one you want to use as your primary trading account when you go live.
This is what we usually look for in a forex broker:
-- Competitive pricing (spreads no larger than 3 pips for standard currency pairs)
-- Minimal “requoting” (the price you click should be the price you get)
-- Solid news resources so you can stay abreast of news events as you trade
-- The ability to create detailed entry and exit orders, rather than only being able to use market orders that require you to sit for hours upon hours waiting for a trade set-up
-- Excellent charting capabilities
-- The chance to interact with other traders, for example through a chat room or instant messaging function
-- Reliable customer support (often hard to verify when you have a free account, because forex brokers usually only offer customer support to paying customers)
-- Sufficient but not excessive leverage ratios
-- Positive reviews from other traders
-- No black marks from third party organizations such as the National Futures Association (NFA) and the Better Business Bureau (BBB)
Looking at that list, you might conclude that the best way to choose a forex broker is to thoroughly evaluate every single aspect of what’s being offered. That conclusion is correct. Thorough evaluation is the key to choosing a forex broker.
Another item to keep in mind is that you don’t have to choose just one broker. Many successful traders maintain multiple accounts. There are multiple ways to make multiple accounts worthwhile.
And of course you know what they say about keeping all your eggs in one basket.
Does Your Forex Broker Accommodate Forex Autotrading Programs?
Another question to ask, when you’re looking for the best forex broker for you, is whether or not a broker accommodates forex autotrading programs, more colloquially known as forex robots and also called expert advisers, or EAs.
Not all forex brokers will allow you to attach an autotrading program / forex robot / EA to your account. You may have to upgrade to a Meta 4 account, you may have to pay for additional services such as a Virtual Private Server (VPS), you may even find that some brokers refuse to admit certain forex robots that are deemed too profitable.
If you plan on using forex robots, plan on finding a broker that will let you.
Ultimately, Forex Broker Beauty Is in the Eye of the Beholder
If you can find a broker that is trustworthy, offers good trade execution, and gives you resources such as charts and news feeds that make you a better trader, you’re doing all right. Fortunately, there are many brokers that meet that standard.
Beyond those basics, it’s really a matter of what you want out of a broker. What’s most important to you? Kind of like picking out a home to purchase, you rarely get everything you want, and may have to compromise on features if you want to save on price.
If you’re a good enough trader, though, you can turn most any forex broker into a nice place to be.
Important Forex Information
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reviews of forex brokers for more information.
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