The forex market is by far the largest financial market in the world. Where other markets have been shaken due to fears about the Omicron variant and creeping doubts over the state of the recovery, geopolitical risks, and the global supply chain disruption, the forex market has grown in response to broader market volatility. In 2021, the forex market reached a value of $2.4 quadrillion, with $6.6 trillion worth of forex exchanged every day. Large, fast-growing markets attract new entrants, and the forex brokerage business is no exception. As a result, new forex brokers have emerged, leaving inexperienced traders wondering what they need to look for in a forex broker. The best traders tend to look for particular things when evaluating a forex broker. I’ll share those things with you to better decide on what forex broker you should work with.
A trustworthy broker should be registered with the proper regulatory authorities, authorities who exist to protect traders and ensure the integrity of the brokerage’s operations. These regulations mean that the forex broker should not conduct abusive brokerage practices. In the United States, a forex broker must be registered with the Commodity Futures Trading Commission (CFTC) as a retail forex dealer and Futures Commission Merchant. A forex broker must also be a National Futures Association (NFA) member.
A forex broker will typically showcase their membership of these bodies on their About Us page or the bottom of their home page.
Across all jurisdictions the world over, you will find equivalent regulatory authorities and trade associations. You need to research to see what the regulations are in your jurisdiction. In the United States, each state has its additional requirements that forex brokers have to comply with.
Traders also prefer to work with forex brokers who have been in the business for a long time, so if you are considering a forex broker, consider when they got their license. This will tell you something about the brand and the business’ experience. In addition, the NFA allows traders to check on forex broker’s membership status and their disciplinary records.
A Professional Website
A website tells you a lot about a business—a great business aggregating little details. If a forex broker cannot be bothered to have a professional-looking website, you should not think that as a forex broker, they will be on top of all the little details that they need to. A mastery of little details is key to running a great business, and a professional website is your first look into the kinds of standards that the forex broker sets.
You have to look at whether their website is easy to navigate, where it is buggy, whether it is informative, among a host of other questions.
Spreads are the difference between the bid price and the asking price. Currencies are traded in pairs, and a trader asks potential counterparties for a specific price, and they bid their price. In liquid markets, the spread should not be very high. So for currency pairs like the GBP/USD, EUR/USD, USD/JPY, AUD/USD, USD/CHF, and USD/CAD, you should expect a spread of around five pips. A more significant spread suggests that your forex broker is either pocketing money somehow or does not have direct access to the market.
Poor customer support can lead to financial losses. The last thing you want is a customer service person who is inadequately trained and can’t help you with your problem or customer support you can’t access because while you wait to resolve your issue, the market could be turning against you and wiping away your investment. Therefore, traders look for forex brokers with quick and impactful responses to customer queries across all communication channels. Typically, traders will test a forex broker’s customer support before signing on with that forex broker. There are no second chances. If a problem is detected, it’s time to move on.
Quick Response Time
Although this is linked to customer support, it is broader than that. Customer service may respond quickly to your query, such as opening or closing a position, but traders are also concerned that fulfillment happens quickly. The best way to test fulfillment speed is to open a demo account with the forex broker to check how quickly fulfillment happens. Of course, a demo account is not the real thing, and a forex broker may be slower to fulfill requests in real life than they are on a demo account, but this will give you an indication of the tools available to you.
Leverage is what makes all futures markets tick. Using leverage allows traders to take their gains to the next level. However, traders want to work with forex brokers whose interests are aligned with theirs. That means having a forex broker who will not give traders excessive amounts of leverage. The reason is that even if a trader may be able to manage a high level of risk, the willingness to offer excessive leverage puts a forex broker at risk. For example, most responsible forex brokers will offer leverage between 100:1 and 400:1. A forex broker who provides leverage beyond that puts their business at risk. Eventually, the chickens will come home to roost, and no trader wants to be part of that.