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.
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.