1
CO M PA R E F O R E X B R O K E R S '
TOP 10 TIPS FOR
CHOOSING A FOREX
BROKER IN 2021
CompareForexBrokers.com
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
2
TOP 10 CONSIDERATIONS
WHEN CHOOSING A FOREX BROKER
Choosing the right forex broker
requires careful consideration.
There are 10 key features that
every trader should research
when selecting a new forex
broker.
Although spreads and pricing
drive a traders decision when
choosing a broker, there are
several factors that contribute
to a well-rounded trading
experience.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
3
1. TYPE OF BROKERS
AND BUSINESS MODELS
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
4
There are two basic types of
brokers that offer retail investor
accounts for forex trading.
These are:
MARKET MAKER BROKER:
also known as a B Book broker or
dealing desk broker.
NO DEALING DESK (NDD)
BROKER:
also known as an A Book broker.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
5
DEALING DESK BROKERS
Dealing desks or market makers set their own
bid/ask spreads (or align with pricing from
global liquidity providers) and use their own
internal sources of liquidity for the trade.
For each trade, the market maker will be the
trader’s counterparty, which means they profit
when the trader makes a loss and makes a loss
when the trader profits.
As dealing desk brokers do not charge
additional commission fees on top of the
spread, spreads are wider than what no dealing
desk brokers offer.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
6
NO DEALING DESK BROKERS
No dealing desk (NDD) execution means brokers match orders directly with external liquidity providers,
thus eliminating the need for intermediaries (dealing desk). This is done using execution methods such as
straight through processing (STP), electronic communication network (ECN), direct market access (DMA)
or hybrid combinations of STP, ECN and DMA.
No dealing desk brokers offer
the tightest spreads as they
pass on bid-ask prices from
liquidity providers with no
markups and instead charge
a flat-rate commission fee.
While dealing desk brokers are
compensated through wider
spreads, NDD brokers profit
from the commission fees
they charge. NDD execution is
suited to day traders, scalper,
algorithmic traders (traders
that use automation).
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
7
2. SPREADS, COSTS AND
TRADING CONDITIONS
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
8
When choosing a broker,
one of the most important
considerations is trading costs.
There are two key trading
costs to research before
selecting a broker, being
spreads and commission fees.
Spreads are expressed in pips
or points and equate to the
difference between bid and ask
prices for a financial instrument.
With each Pip costing USD$10
or pro-rata (USD $1 for 0.1 pips)
to open a position and again
to close a position (i.e. USD$20
in total), using a broker that
offers tight spreads can help to
reduce costs.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
Commission fees are the second main trading cost. No dealing
desk brokers may offer lower spreads, but high commission costs
can negate these savings. It is important to factor in the cost of
both spreads and commission fees when assessing a broker's
competitiveness.
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
9
ACCOUNT TYPES AND SPREADS
COMMISSION
ACCOUNTS
NO COMMISSION
ACCOUNTS
VARIABLE
SPREADS
Often referred to
as ECN accounts.
Commission account
types provide low
spreads as no
commission costs are
included in the spread.
Instead a commission
fee to open and close
a position (round-turn)
for each lot that is
traded.
Often called standard
or classic accounts.
Commission-free
accounts have a
wider spread than
ECN Accounts as
commission fees are
included in the spread.
Also called floating
spreads, variable
spreads fluctuate inline
with market conditions
such as available
liquidity and major
news events.
For example, EUR/
USD spread = 1.4 pips +
no commission fees.
Many brokers offer
traders a choice of
either variable spreads
that move with market
conditions or fixed
spreads that are set
by the broker and
constant.
For example, EUR/
USD spread = 0.4 pips
+ $3.50 commission
fee per side, per 100k
traded.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
Variable spreads use
market execution.
FIXED SPREAD
Fixed spreads remain
constant regardless
of market conditions.
While the fixed spreads
tend to be significantly
wider than variable
spreads, they enable
predictable trade
planning as traders will
know what they can
expect to pay for each
trade.
Some brokers may
change fixed spread
in the most extreme
conditions.
Fixed spreads use
instant order execution.
W W W.C O M PA R E F O R E X B R O K E R S .C O M
10
On top of spreads and
commission fees, there are
other fees and trading costs
to consider when choosing a
broker:
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
OVERNIGHT FINANCING FEES:
INACTIVITY FEES:
Traders that keep leveraged positions
open for longer than one day may
need to pay overnight financing fees
(also called swap rates). Depending
on whether a leveraged position is
long or short, a financing cost that is
derived from interest rates will either
be paid or received.
If a trader leaves their account
dormant and doesn’t make any
trades for a short-term period
(usually 6-24 months), many
brokers will charge monthly
inactivity fees.
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
11
3. EXECUTION SPEED
AND SLIPPAGE
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
12
To ensure quick order execution, many brokers place their servers at
data centres near major liquidity providers. Faster execution reduces
the risk of slippage and a good broker will advertise their average
execution speed that is typically expressed in milliseconds (ms).
As forex markets are volatile,
if you are trading with variable
spreads then it can help to
minimise slippage. Slippage
refers to the difference between
the expected price when an
order is placed and the actual
price the trade is executed
which can occur due to lag time
during execution. Slippage can
be positive or negative and
can become exaggerated in a
volatile market.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
13
To find a best broker with the
least amount of slippage, you
can compare market order and
limit order execution speeds.
Certain brokers will make this
information publicly available to
highlight their transparency.
MARKET ORDERS:
Market orders are placed at the
current market price with no price
limits. Market orders are commonly
used for automated trading.
LIMIT ORDERS:
Limit orders allow traders to
predetermine a price to buy or sell,
with the order being automatically
executed if markets reach the
preset price, otherwise the order
will not be executed.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
14
4. REGULATORY
OVERSIGHT
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
15
Financial regulation varies between jurisdictions,
and it is recommended to use a broker that
uses the regulator of your country of residence.
Trading with a locally regulated broker ensures
they are following the business and financial
requirements of your country and provides the
best protection if your broker were to run into
problems. It also ensures traders have recourse to
resolve issues with the broker should a dispute
arise..
If a broker does not use the local financial
regulator of your country, then you may still
be able to trade with that broker, but there is
no guarantee what protection you will receive.
Financial regulators can only help traders of the
country they monitor.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
16
Tier-1 regulators such as the
Financial Conduct Authority
(FCA) in the UK impose the
strictest financial regulation
worldwide. Depending on the
financial authority and country,
brokers will provide different
levels of investor protection
including:
LEVERAGE
CAPS
NEGATIVE BALANCE
PROTECTIONS
SEGREGATED TRADING
ACCOUNTS
DOCUMENTED COMPLAINTS
PROCEDURES
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
Some brokers hold offshore licenses from regulators such as the
Securities Commission of The Bahamas (SCB) or are not regulated by
any financial authorities. While this does not necessarily mean your
funds are unsafe with these brokers, it is always advisable to use a
tier-1 or tier-2 regulated broker.
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
17
5. CUSTOMER SUPPORT
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
18
Whether you are a high-volume trader or a
beginner with account queries, getting in touch
with your broker should be quick and easy.
When researching a brokers’ customer support, it
is important to note the hours of operation as well
as contact methods.
COMMON CONTACT METHODS INCLUDE:
• Email
• Phone
• Live chat (via website or trading platform)
Depending on your location, multilingual customer
support may also be helpful.
OTHER METHOD OF SUPPORT INCLUDE:
•
•
•
•
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
Support via social media (Facebook, twitter, line)
FAQ
Glossaries
Forums
W W W.C O M PA R E F O R E X B R O K E R S .C O M
19
EDUCATION
To supplement customer support teams, many brokers offer educational materials
designed for all levels of forex trading experience. Resources such as webinars, trading
platform courses and tutorials can usually be accessed for free.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
20
6. TRADING PLATFORMS
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
21
Whether you prefer to fully automate trading
or use social trading tools, it is vital to select
a trading platform that provides the market
access and trading tools required to achieve your
investment objectives. There are 3 key types of
trading platforms:
MAINSTREAM PLATFORMS:
Freely available platforms such as
MetaTrader 4, MetaTrader 5 (MT5)
and cTrader.
PROPRIETARY PLATFORMS:
Trading platforms built by the
broker exclusively for their clients.
SOCIAL TRADING PLATFORMS:
Can be pure social trading platforms
or add-ons to existing platforms.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
22
When choosing a platform, you need to consider a range of
factors to find the best trading platform for your need:
The costs involved to access the trading platform - most software including
MT4 and MT5 is free
The selection of technical analysis tools available, such as charts and indicators
Whether you can place orders through the charts
The platform’s ease of use and the quality of its graphical user interface
The quality of historical data and how far it dates back to
The backtesting tools available for optimising trading strategies
Whether you can integrate other apps with the platform, such as social-copy
trading systems
The size of the trading community where you can share ideas and learn from others
The reputation and reviews of the trading platform and features
The range of asset classes and financial instruments you can trade
Whether you require automated trading features
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
23
Automated Trading Features
ALGORITHMIC TRADING:
A method of automating trading
using trading robots (algorithms)
that automatically enter or exit
trades based on a predetermined
set of rules. You can write their
own trading robots or implement
other traders’ algorithmic trading
strategies.
SOCIAL-COPY TRADING:
The other form of automation is
social-copy trading where you use
account mirroring services to copy
the strategies of other traders. This
may include copying the trades of
more experienced traders or also
gaining access to a social network
of forex traders.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
24
7. LEVERAGE AND
MARGIN REQUIREMENTS
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
25
Leverage allows traders to
increase trade sizes while
only contributing a fraction of
the trades total value. When
trading with leverage, you are
contributing a percentage
of the trades total size, with
the broker fronting the rest.
Different maximum amounts
of leverage are available when
trading CFDs. The leverage you
can use depends on:
• The CFD and asset class being
traded.
• The broker’s financial regulator
and its local leverage limits.
• The broker’s individual risk
management policies.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
As trading forex and CFDs is a high-risk activity, you should be
cautious when entering a highly leveraged position. While favourable
price movements can lead to large returns, unfavourable price
movements can lead to crippling losses.
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
26
8. BROKERS TRADING
TOOLS AND FEATURES
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
27
To provide protection against market volatility and the high risk of forex
trading, most good brokers will offer a range of risk management tools in the
form of order types and demo accounts.
Negative Balance Protection
Negative balance protection (NBP) ensures you cannot lose more than the
balance in your trading account, no matter how quickly the market may move
against you. Some brokers choose to offer NBP, while others are required to
due to local financial regulation. If you are a European trader signed up to a
broker’s European subsidiary, you will receive NBP automatically.
Order Types
Order types can help minimise your losses when market prices move in an
unfavourable direction. Useful order types include:
MARKET ORDERS
STOP-LOSS ORDERS
TAKE PROFITS
GUARANTEED STOP-LOSS ORDERS (GSLOS)
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
28
Other risk management tools
Some brokers specialise in risk management tools
and provide exclusive tools not offered by other
brokers. This can be useful for new traders and
risk averse traders.
Demo Accounts
Whether you are a new trader wanting to find
user-friendly software or an experienced investor
seeking advanced trading tools, demo accounts
allow traders to test trading strategies and
familiarise themselves with the trading platform
prior to opening a live account.
As traders can practice strategies and test trading
robots with real-time market data, demo accounts
are a great tool to help reduce the high risk of
forex trading. While most brokers offer demo
accounts with time restrictions and limited virtual
funds, some brokers allow unlimited access and
virtual trading balances.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
29
9. FUNDING POLICIES
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
30
The initial minimum deposit, deposit and
withdrawal methods plus funding fees all vary
between brokers. When choosing a broker, it is
important to check whether fees are attached to
your preferred funding method.
Minimum Deposits
To open an account and start trading, many
brokers require customers to make an initial
deposit into their trading account. If the broker
doesn’t require a deposit to open an account, you
will still need to meet margin requirements when
you go to open a trade.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
Common Funding Methods
• e-Wallet payment methods such as Skrill,
Neteller, PayPal and Bitcoin Wallets
• Credit cards, commonly restricted to Visa and
Mastercard
• Bank transfer, wire transfer and broker to broker
transfer
• Cryptocurrencies (i.e. Bitcoin)
Deposit and Withdrawal Fees
• It can help to be aware of a broker’s fee
schedules when assessing funding methods as
they can differ between:
• Free unlimited deposits and/or withdrawals
• A limited number of free deposits or
withdrawals per month with any subsequent
funding incurring a fee
• Fees for all or selected deposit or withdrawal
methods
W W W.C O M PA R E F O R E X B R O K E R S .C O M
31
10. REPUTATION
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
32
With today’s online resources,
it is easy to gauge a broker’s
reputation within the forex
trading community. To learn
more about a forex broker and
their reputation among traders,
you can use the following
resources:
Broker comparisons such as
www.compareforexbrokers.com
Review sites such as Trustpilot or
Google reviews
Forums where brokers, forex trading,
and trading platforms are discussed
Awards from respected
industry voices
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
W W W.C O M PA R E F O R E X B R O K E R S .C O M
33
CONCLUSION
The wide array of brokerage choices is both a
blessing and a curse. The blessing is that the vast
choice of brokers translates to the opportunity
to find a broker that suits your individual trading
needs. The curse is that with so many choices; it is
easy to get confused and overwhelmed with the
number of choices and features.
TOP 10 TIPS FOR
CHOOSING
A
FOREX
BROKER
IN
2021
Most importantly, give yourself plenty of time
to choose an online broker, ensuring the pricing
structure, trading features and platforms suit your
trading style, needs and objectives. This eBook
looked at ten of the most important considerations
when choosing a broker. Ultimately, when it
comes to choosing a broker, you need to consider
the type of trader you are and what trading
considerations are important to you.
W W W.C O M PA R E F O R E X B R O K E R S .C O M