What Are The Factors In Choosing A Foreign Exchange Broker?
With foreign exchange brokers located all around the globe, the complexity of choosing the right FX broker for you may
With foreign exchange brokers located all around the globe (especially concentrated in America, Europe and Asia), the complexity of choosing the right FX broker for you may feel daunting—or may not be given adequate thought. However, rather than procrastinating the decision or rushing to make a choice without enough information, you may find yourself instead making one of the best decisions of your life by choosing your FX broker carefully, with the right intentions and awareness.
As a professional who lives, sleeps, eats, and breathes foreign exchange and dynamic financial markets (a huge passion and joy for me), I am writing this article to help you know what to look for when choosing an FX broker that is right for you.
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What’s at stake in your choice? Certainly your trading environment and the stability of your funds and winnings. Equally importantly: your peace of mind and security.
So what are the key factors that can guide you in choosing the best FX broker?
In this article, I enumerate and describe these factors in order of importance. (For additional perspective, please also see my article on “white label” solutions.
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Factor 1: Regulation and stability of the country where the broker is regulated
Today, it’s a MUST to choose a regulated broker, but the fact that the broker is regulated doesn’t mean enough by itself. The key question is: where is this broker regulated? And what is the stability of the country in which he is regulated?
Since you will open a trading account with the intent to secure your principal and valuable returns, your initial funds plus your winnings will technically accrue within that country, so it’s very important to understand the economic and financial situation of the country itself. You want to limit foreseeable risk factors and limit the probability that you’ll wake up one morning soon and read in the news that the government has interfered and taken control of your funds.
Some countries apply stricter regulation of brokers than others. Regulations in New Zealand are different than regulations in the United Kingdom or Switzerland, for example. It’s worth your time to learn more about regulations in countries associated with the FX broker(s) you are considering. Regulations exist for the benefit of you, the client.
As a trader, you can count on the following rule: Stricter national regulations on brokers tend to equal more control for you and better protection for you as a client.
Why? If something goes wrong—e.g., a broker mistreats you as a client for any reason—your major (and sometimes only) remedy is to apply your rights under the regulations and laws guiding the jurisdiction of your FX broker. For jurisdictions with stricter regulations and more regulatory resources, you are much more likely to find a financial regulator who will serve you, look into your complaint, investigate your broker’s practice, hold each stakeholder in the incident accountable to the relevant regulations, and promote a remedy if you have been treated in an unfair way. In countries with “softer” or fewer regulations, this remedy may not be available to you. In the event of malpractice by a broker, it may be more difficult for you, in many countries, to clarify what happened and to determine and hold accountable who is responsible for what happened.
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Very good article, you provide a lot of depth and clarity for those who are interested in taking FX seriously. One thing that could have been touched on in more detail is the security issues invovled with using what many call “bucket shops.” Account segregation, transparency, and record-keeping are extremely important and often overlooked factors to consider. I would have liked to see a more detailed exploration of how funds are handled within Forex Brokerages and to what degree these processes may differ. There is the well-known risk of errors with the record-keeping process: funds get “lost” during a mis-handled… Read more »
Mr. Sanchez, you are giving retail traders an incomplete and in my opinion – wrong – picture about choosing a “good retail broker”. The first and utmost goal of every retail trader I know, is to make profits for his own account and not the one of the retail broker. Nowadays it´s not anymore about security of funds or regulation – it´s about to make your customer profitable. The best retail broker in the world is not “the best” if retail traders are losing money. A “good broker” is one that facilitates much more than only execution services. There are… Read more »
Mr. Spencer, thank you for sharing your opinion and comments. I appreciate when people such as yourself make comments on my articles because the varied perspective is excellent for industry readers: this sharing helps more people to experience different angles and points of view. And I want to clarify also that I respect all opinions on the subjects of my articles, even if some are completely different from my own. Coming back to your opinion about traders choosing a broker based on a certain “client profitability rate,” I would like to pose two questions in order for readers to understand… Read more »