There are a countless number of Forex brokers online, and to choose the one for you, you need to know what makes them different. We only review reputable brokers according to strict editorial guidelines, where our goal is to highlight their differences and educate the trader.
Verified broker regulation is the most critically important aspect of choosing a broker. Regulation is the safety net that protects traders from mismanagement of funds and poor businesses practices at the broker. The Australian regulator is ASIC, but other top tier brokers are the FCA (United Kingdom) and MAS (Singapore).
Trade execution method is different between brokers, where one major difference separates them. A direct market access (DMA) broker will execute all trades on the currency market, finding buyers and sellers as clients open and close positions. In contrast, a market maker broker will create the market themselves and act as the counterparty on all client trades. While DMA brokers do not interfere with client trades, market makers can have a dealing desk that may intervene with the trades under their supervision. A dealing desk creates a conflict of interest between client and broker.
Trading costs should match your expectations of the broker. Trading costs are the sum of the spread price and the commission for the volume you are trading. Market maker brokers will typically include all the fees in the spread. In contrast, DMA brokers will have tighter spreads and a commission based on the volume traded.
It is generally the case that market makers have higher trading costs. While some traders will advise finding the broker with the lowest spread/commission combination, there could be a reason for a broker charging higher fees. It would be acceptable to pay higher trading costs in exchange for offering superior trading material, access to a trading community, or for using a unique trading platform.
The majority of brokers support industry-standard software, such as MetaTrader 4, MetaTrader 5, and cTrader. There are few exceptions, but these are typically providers like eToro or Plus500 who are trying to add additional features like social trading or break away from the traditional trading experience.
Learning to trade will take study and practice, so ensure that your broker meets your expectations for education material and demo accounts. Beginners are strongly advised to use a demo account until they are comfortable with both the trading software and the risk management needed for successful trading.
Speedy withdrawals are one of the highest priorities for professional traders, so the rules, fees, and the timeline for getting your money back should be communicated. The majority of scams in the Forex market are related to withdrawals. Finding the best broker is a combination of all of these factors. In comparing brokers, we rate the above aspects of each broker between 1 to 5, and then weight each of the ratings. Reviewed brokers receive a score which we include on the review and in our State of the Market Report alongside the full methodology.
What not to worry about
Because Forex brokers are quite similar in many ways, what often sets them apart is the marketing and an intent to out-do each other. It is common to see brokers trying to compete on minimum deposit requirements, maximum leverage allowances and bonuses.
The minimum deposit for a committed trader should be equivalent to 200 USD (300 AUD). Forex trading is margin trading, which means traders borrow money using leverage to make bigger trades. The downside to borrowing capital means it leaves the trader responsible for the entire loss should the trade go in the wrong direction.
Should a trader deposit the 5 USD minimum required, there will be no account capital available to use as collateral for using leverage. In the case that a trader uses leverage while maintaining a small account balance, there will be a higher chance that the broker will close the trade in a margin call.
Some brokers use leverage as a marketing tool, offering upwards of what is reasonable to traders who have little understanding of the markets. You are probably only going to use up to 100:1 leverage for most of your trades, so don’t go straight for the broker with the highest leverage.
Some regulators continue to allow brokers to offer deposit bonuses to clients. In 2016, CySEC was the first major regulator to put a complete stop to using bonuses to attract and encourage traders. Bonuses always come with many conditions, and a tiny percentage of traders ever qualify to withdraw the funds.
In short, brokers with low minimum deposits are not better than those with $200 minimums, traders don’t need 3000:1 leverage on an account, and never sign up with a broker because of the bonuses they offer.
