How to Chose a Forex Broker

5 Points on How to Chose a Forex Broker in 2011

Basics & Industry, Forex Industry | Yohay | Created: Jan 4, 2011 09:00 GMT; Last Modified: Jan 2, 2011 16:00 GMT

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Yes, I know there’s lots of information about how to choose a forex broker, yet new tools are available for assessing brokers, new tools that weren’t available beforehand. Here are 5 points about how to chose a forex broker for the new year:

1. Regulation: Regulated brokers tend to be more fair with their clients. There’s isn’t a 100%, but losing the approval they worked so hard to get, is likely a risk they won’t take. The US NFA and CFTC, British FSA, Swiss FINMA and the Australian ASIC are all good stamps. The US authorities made significant improvements, so they became more relevant. Don’t settle for seeing a stamp of approval on the broker’s site. Check out the official government sites of each regulatory body.
2. Profitability rate:  Speaking of regulation, this is a rather new metric, that is only available to US brokers. Brokers are now required to post the profitability rate of their customers. A broker with a higher profitability rate likely works harder to make his traders succeed. This can be done in terms of education, support or anything else.
3. Transparency: With the significant growth of forex social networks, transparency isn’t only a nice buzzword. Is our potential broker available on social networks such as Currensee or FXBees? If so, it’s a good sign, that he has less to hide.
4. Google Bad Reviews: Positive reviews can be tricky thing, but look up for genuine negative ones – Google the broker’s name with words such as “sucks” or “withdrawal” to see if clients had troubles with the broker, especially in the sensitive field of withdrawing money. Too many genuine complaints mean trouble.
5. Broker type: Most brokers are market makers, meaning they create the market between their traders. This may easily lead to a conflict of interest between the broker and the trader, as the broker is also a participant in this market, and may bet against the trader. NDD / ECN / STP brokers, that generally send the orders to bigger institutions and just serve as mediator taking commissions, tend have better morals. As most brokers are market makers, and many of them are OK, this factor is hard to apply. Nevertheless, I believe that these models will become more prominent in 2011, thus allowing the traders more choice.

Spreads, leverage, platform type, and many other parameters are also of importance, but at the end of the day, you want to know that your broker is reliable.