How to Compare Forex Brokers

compare Forex Brokers


There have been many burning questions by new Forex traders as to how they should compare Forex brokers. There are lots of Forex brokers offering lots of different spreads, leverage ratios, etc. So how do we make that all important decision on who to trade with? The solution is you need a checklist of the key points to consider when comparing brokers and also how important each item on the checklist is.

Here is my check list to help you compare Forex brokers.

1. Type of accounts the Broker offers – Brokers offer various type of accounts (See article on sizing). Micro, mini and Standard. The difference between these is really important. Standard accounts offer the largest contract lot sizes, these are not the most suitable but many brokers prefer you to have these despite requiring you to only deposit small amounts, reasons are simple the larger the contract size the more made on the spread. These are aggressive brokers and will turn you over quite fast and send you away crying. When you compare Forex brokers go with the broker with the most account types.

2. Spreads – This is the difference between the bid and ask price, simply the difference between the sell and buy price. This can vary between 1.5 pips and 7 pips depending on the currency pair you trade (Gold is an exception). This spread is also the brokers commission (Note ECN brokers charge a commission so spreads in most cases are 0 or small as orders are executed into the Interbank dark pools). This is important to you because you have to make this difference on every trade, so the wider it is the more you have to make up. Good news is that most brokers are competitive so the most you will ever see on major pairs is 3 pips on average most brokers are between 2 and 3 pips. That being said minor and less liquid pairs have wider spreads for example CAD/JPY.

3. Roll over charges – When you compare Forex brokers it is one of the most important things. Most people are looking for quick wins so tend to trade minute or hourly charts. One of the UK’s foremost Forex traders once said to me, “How can you trade a 1 min chart?” If you a want to trade seriously then you need to hold an overnight position, in most cases it is just a very small swap you will incur depending on the difference in currency rates you should get a credit in some cases but some brokers charge you extra on the swap or never credit you. Watch out for this.

4. Leverage РThis is important and also not important. Why do I say this? Some brokers offer 1:1 leverage ratios but where is the fun in that? It is leverage that allows you to make money but it also leverage that will loose you money. Make sure the Broker has multiple leverage options for example a broker offering 1:250 leverage on 10,000 mini contract lot is saying you need 0.4%  of $10,000 = $40 as a margin to trade that lot however if you are trading on MT4 your losses are not limited to the margin but rather exposes your whole account with the broker. Some brokers like FXPro do offer MT4 web traders that allow you to trade mini accounts and limit losses to margin only. In my opinion the lower the leverage the more margin you need but the more pip room you have. If your broker runs mini accounts then 1:100 up to 1:400 is an okay leverage to consider. Be weary of Brokers of high leverage ratios on smaller account types.

5. Execution – I can’t tell you how many times I see people compare Forex brokers and don’t compare the execution rate. This will wreck you if you are a day trader, when you place your order the broker has to execute it, this should take 1.5 seconds maximum. Some brokers I hear take up to 10 minutes to execute. This will mean you loose your market move and place your order on an ended move or on a reversal. Not good…

6. Tutorials and 1 on 1 account management – No matter how often you trade you can always learn something new. I can trade with almost any indicator but some work best for me. The other day I discovered a killer indicator, how to actually use it and it worked wonders when looking for reversals in trends. Ichinoku Kinko Hyo is a tool most people don’t use because it doesn’t work for them how they use it. Regular tutorials and 1 on 1 advise can improve your trading arsenal and most importantly it shows your broker wants a long-term relationship with you and won’t turn you over like a pig.

7. Withdrawal and deposit methods – Check out the web for complaints when you compare brokers and the number 1 complaint is, I could not get my profits and it has taken days, the broker is shit! Here is the real problem, COMPLIANCE! These brokers are heavily regulated so they have to beware of anti-money laundering, etc. So you pay $100 into your account via VISA card and as the universe has it you loose your card and your replacement is now different and your broker insists they need to pay profits into the same card. Bad news! You have probably made a cool $400 and can’t access it. This can be a nightmare. So make check your brokers policy on withdrawals and ensure they have multiple deposit and withdrawal methods.

There are many other criteria you can draw when you are comparing brokers but these are the most important.