Below you will find a checklist you can use before choosing a broker. Forex trading has become immensely popular in the last 10 years and there are literally hundreds of brokers to choose from.
Unfortunately, there are some brokers that are only looking to cheat you and grab as much cash as possible from you.
By following the checklist below, you can filter out such brokers.
The broker should preferably be regulated in either the EU, UK, Australia, Singapore, or the United States.
A lot of brokers are licensed by regulators from small island states i.e. Vanuatu. Keep in mind that regulators from such states offer much less protection for you as a consumer.
If you want to choose an off-shore broker, it’s usually best if the broker is also regulated in reputable jurisdictions.
Unregulated brokers should be avoided at all costs.
It’s usually a good sign if a broker accepts deposits from trusted payment providers such as VISA/Mastercard or PayPal.
If a broker were running a fraudulent operation, such payment providers would eventually stop working with such companies.
If a broker only accepts deposits via cryptocurrencies such as Bitcoin, it’s usually a big red flag.
A segregated account basically means that the deposits from clients are kept segregated from the broker’s funds.
Most regulators demand that their licensed brokers apply this measure, but many regulators don’t.
If the funds are not segregated, the broker can use your deposit for running the brokerage, which is a massive risk for your capital.
You should be able to communicate with the broker hassle-free via telephone, email, or LiveChat.
If a broker only accepts communication via email (which usually has a longer response time) it can quickly cause unnecessary frustration.
In addition, you should be given a personal account manager whom you can contact directly in case of any problems or inquiries.
When you place a forex trade with a broker, it has several ways to handle it:
- Hedge the trade, either with another client or by themself
- Act as a counterparty (Market Maker)
- Route the trade to an external liquidity provider
If a broker only acts as a counterparty, with no option or intention to hedge or route trades, it’s a big conflict of interest.
In such cases, your loss becomes their gains.
You should make sure that the broker has the option to route and/or hedge trades from the client to eliminate such conflicts of interest.
Negative Balance Protection
If a market shock were to happen, such as a flash crash, it’s important that you have protection against negative balance when you use leverage.
Usually, the broker has a stop-out level in order to protect you and themselves from market shocks or weekend gaps.
Under extreme circumstances, the client can end up with a negative balance (i.e. high leverage and weekend gap).
Therefore, you should ensure that your broker offers protection against negative balances.
Brokers regulated in the EU/EAA offer negative balance protection to all non-professional clients.
By following the checklist above, you will find a forex broker you can trust and trade securely with.
We primarily recommend Skilling to our readers, which checks all the points above. You can read our Skilling review here.