Selecting the Best Forex Broker

March 20, 2017

Which forex broker is right for you?

There are literally hundreds of brokers competing for your business, so selecting the best forex broker for you and your strategy can be quite difficult. Regulation, range of markets, transaction costs and execution model are just a few of the factors you’ll need to consider when choosing a broker.

Regulation

Regulation is by far one of the most important factors to consider when you’re searching for a forex broker. It is important you select a broker that is based and regulated in a developed nation, with a strong regulatory framework and focus on protecting the consumer. You should never trade with an unregulated broker, or brokers ‘regulated’ in tax havens and nations known for corruption or lax financial regulations. The best forex brokers all tend to have Australian (ASIC) or UK regulation (FCA). Though the US has a very strong regulatory framework; many traders would say US regulations go too far and limit their ability to trade profitably.

Another issue is brokers which appear to be regulated in the UK or New Zealand, but actually are only ‘registered’ there, leaving the client with very little, if any, protection in the event of a solvency issue or dispute with their broker. This is why many traders prefer ASIC regulation – there are no ‘back-doors’ to operating a forex-brokerage in Australia. If you trade with an Australian broker like Vantage FX, you know you’re money is in safe hands and your broker is always acting in an ethical and responsible manner, in line with ASIC’s strict financial regulatory framework. At the same time, you are free to leverage your funds as you see fit, hedge your positions and exit your trades in any order. These are some of the things US regulators have interfered in, causing great annoyance to a lot of American forex traders.

Range of Markets

Having a wide range of markets to trade, allows you to capitalize on every available opportunity and maintain a diversified portfolio which is resistant to shocks and crashes in individual markets.

A wide range of tradeable markets doesn’t just give you more freedom and trading opportunities though, it is also a good indicator of a broker’s quality. If a broker only offers a few major FX pairs for trading, that raises serious questions about their influence and weight in the industry. A good broker, with an extensive network of liquidity providers, should have no issues offering all the most popular market instruments for trade. On top of an exhaustive list of major, cross and minor FX pairs, the major global indices (SPX, DAX, NKY etc), commodities (Gold, Silver, Oil) are essential for most active traders.

Transaction Costs and Execution Model

Execution model refers to how a broker handles your trades. You should generally avoid brokers that operate on the ‘market maker’ model: these brokers actually trade against you and have a vested interest in you losing money. The best forex brokers operate on ECN (Electronic Communication Network) or STP (Straight-Through Processing) models, where your trades are actually placed in the real market and affect the price of the instrument you are trading. Even though ECN and STP brokers only make their money from transaction costs like spread and commission, their transactions costs are generally much lower – market makers tend to make their markets with incredibly wide spreads that don’t reflect actual trading conditions in the underlying instruments.

Brokers who operate on the market maker model have also been known to distort markets and actually cause client losses, seeking to capitalize on the model’s inherent conflicts of interest. This can be achieved through artificially widening the spread, or even exaggerating price spikes at times of increased volatility. These brokers will also often reject your trades and/or re-quote you at a disadvantageous price, leaving you with a worse than expected entry level. This unscrupulous behaviour is inherently self-defeating and eventually all brokers will operate on the ECN or STP model (market-making has recently been outlawed in the EU), but until then, it is important you select a broker who is operating on a model that is free from any conflicts of interest and gives you the best possible trading conditions.

Vantage FX offers clients both ECN and STP execution models – traders who are just starting out or don’t like paying commissions usually opt for the SPT model, whereas the ECN model is a favourite among professional traders and those running automated trading systems.

Fee Free Deposits and Withdrawals

The best forex brokers allow you to fund your account using a variety of methods and should offer at least one method which is completely free of transaction costs. Withdrawals should be easy and free as well. You should be very wary of brokers that appear to make it difficult to withdraw profits or seem to penalize you. In 2017, it is unacceptable to force clients to use ancient and expensive methods like wire-transfer. Vantage FX is committed to offering all our clients an extensive range of fee-free, hassle-free deposit and withdrawal options.

Education, Analysis and Service

Have you ever spoken to your forex broker and found the service staff lack trading knowledge? There is nothing more annoying in our experience. When you contact your broker with a query or technical issue, you should be confident that you will speak to an experienced professional who understands trading. The best forex brokers employ knowledgeable support staff and experienced market analysts, who can answer any of your questions and produce helpful educational content and market analysis. The best forex brokers give you the tools you need to succeed as a forex trader. Vantage FX provides all our clients with excellent 24/5 customer service, an extensive collection of educational articles and resources, as well as regular market commentary and analysis via the Vantage FX blog.

Open an Account with the Best Forex Broker

There are many different factors to consider when selecting a forex broker, we have covered just a few here. Take a look around the website, give us a call, or open an account and see for yourself why our clients consider Vantage FX to be the best forex broker.

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