Choosing the Right Forex Broker in 7 steps – Part 1 – FX Leaders

Is your broker honest?

When you decide to enter the Forex business, there are several steps you should take. First, you must learn the basics of trading and the financial world. You can get some of this wisdom here on our site, reading our Forex strategies, and also the daily and/or weekly analysis. Second, you have to set aside some funds and open an account with a broker. But before you throw all your hard-earned money on one broker, you should evaluate and compare different brokers with minimal live accounts. Only then can you open an account and fund it reasonably. Picking a broker is not that simple; there is a process to the madness and we are going to help you understand how to choose a broker that´s right for you.

Broker security

Honesty is the first rule when it comes to choosing a broker. There are different types of brokers, some of them are more reliable than others. Some brokers will lose your account in different ways, such as price manipulation, stop loss hunting or simply refusing to return your funds. Therefore, before you open a live account you should do some research about their credentials… are they licensed and if so then where are they registered? I am not implying that all brokers in the first world countries are angels or that all the brokers in developing nations are not, but from what I´ve seen some of the dodgiest brokerages are registered in countries like Cyprus, Mauritius, Cayman Islands etc. So you would be better off if the broker you opened a real account with is registered with one of the following regulatory agencies:

USA – The Commodities Futures Trading Commission (CFTC) and the National Futures Association (NFA).
UK – The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).
Germany – The Federal Financial Supervisory Authority ( BaFin)
France – Autorité des Marchés Financiers (AMF)
Switzerland – Swiss Financial Market Supervisory Authority or (FINMA) and Association Romande des Intermédiaire Financiers (ARIF).
Hong Kong – The Hong Kong Securities and Futures Commission (SFC).
Italy – Commissione Nazionale per le Società e la Borsa (CONSOB)
Australia – The Australian Securities and Investments Commission (ASIC)
New Zealand – The Financial Markets Authority (FMA)
Denmark – The Danish FSA

Broker or Introducing Broker (IB)?

Are you better off with a broker or with an introducing broker? The other step in choosing a broker is to decide if you want to open an account with a prime broker or with an introducing/carrying broker (IB). You can check the legal section on their website and/or call the company and ask them if they are a prime broker or an introducing broker. There are advantages and disadvantages to both. When you open an account with a prime broker, you sign a contract directly with the broker so you don´t have to go through the third/middle party if there are issues. When you open an account with an IB, the funds and securities are deposited at the prime broker. Primary brokers usually offer lower spreads because one of the ways which the introducing brokers make profits from is by adding 0.2-2 pips to the spread provided by the broker. An IB might be very reliable, but there´s little to nothing the IB can do if you don´t want to move your account from that primary broker for certain reasons (i.e. bad performance).