Choosing a Good Forex Broker - Finding a Dolphin amongst the Sharks

 

The Good, the Bad, and the Ugly

I'm sure you know it, but the spot currency market (forex) is unregulated. That is, it doesn't have a governing body like the SEC for the stock market watching over it. That means that there will be bad brokers. A bad broker will shade pips, take the other side of your order, etc. In general, they will definitely make it harder for you to make money.

Recommended Forex Brokers

I don't intend to label bad brokers here. First of all, there are other places you can find reviews of brokers. Second, I don't want to get sued. Okay, here are the two best forex brokers in the world. (Just so you know, I'm not an introducing broker for either. I receive no compensation of any kind for referring them to you.)

1. OandA.com. Good broker. They only allow up to 50:1 margin (which shows that they are honest). Brokers that allow really high margin like 200:1 are trying to lure beginners. They operate on the churn and burn business model. After all the majority of professional forex traders (those who trade others money) only trade at 1:1.

The other good thing about OandA is the fact the spread isn't fixed. It will vary from 1.5 pips to 4 or 5 pips for the EUR/USD. A spread that moves like that shows that they are widening the spread when their risk is increasing due to volatility. Another broker who always holds the spread at 2 pips is shading.

2. InteractiveBrokers.com Here they charge you a commission plus a small spread. However, the two added together is still only about 3 pips. Plus, since they charge a commission, you are guaranteed that they will not cheat on the price they give you. Why would they? They've already made their commission up front. It's a very honest setup. The only drawback is to trade, you must deposit $25,000 USD or the equivalent.

How to Tell If a Broker Is Bad

The first and most obvious way is to do a web search on them plus the word review. Read what others say about them. Supposing they are no comments about the broker, read their website. Do they offer 100:1 leverage or more? That is a warning sign. The higher the leverage you use, the more likely you are to bust your account. Unscrupulous brokers make big money off of new traders blowing their accounts (as they take the other side of every trade).




Here are some related articles on brokers.

What mobile software is available (and you can get it free)
Mobile Forex Software

Spreads and what to watch out for
Forex Foreign Exchange Spreads

Listing of forex brokers that have MetaTrader
Forex Brokers That Have MetaTrader

How to choose the best online platform
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Who has trailing stopes? And are they a good idea?
Online Broker with Trailing Stops

Want to be your own broker. Go white label
Forex White Label Partners