Forex Broker Selection Criteria
In this article we will provide forex traders with a list of forex broker selection criteria. We will also provide some suggestions as to what additional criteria you may need to select a broker for using with the Forexearlywarning trading system. Forexearlywarning cannot make direct recommendations for who to use as a broker but this article has links to some third party suggestions to make a good forex broker comparison.
Criteria 1 - Ask your broker what the minimum deposit is for each live account, for trading with the Forexearlywarning system you will start trading with live funds with micro lots, so make sure you fund the account initially with around $1500, more is better. This will accommodate the fact that some pairs now have higher margin requirements than in the past. If you are trading with leverage greater than 50:1, the initial deposit can be lower.
All traders must know that if you are a successful demo trader but do not have any funds, there are over 10 companies now providing live capital to forex traders. Check out this article if you need a fully funded forex trading account.
Criteria 2 - Get a list of what pairs are available to trade with your prospective broker. At Forexearlywarning we trade 28 pairs, all comprised of the following 8 currencies: USD, CAD, EUR, CHF, GBP, JPY, AUD and NZD. This should not be a problem as most brokers have many more pairs than this. A broker that has a lot more pairs is not an advantage, these are the top 28 pairs with highest liquidity and lowest spreads.
Criteria 3 - Ask your prospective broker if they have permanent demo accounts, some brokers have demo accounts that expire every 30 days, then you must renew it. This is a hassle and is not good for swing traders or trend traders. Make sure you can your keep the same demo account for long term demo trading with trends on the larger time frames. Some of your demo trades may be open for months since we trade with the larger trends and time frames. At Forexearlywarning we ask all clients to demo trade our system before moving to live funds, so demo trading accounts are essential.
Criteria 4 - Leverage is currently 50:1 in the USA, higher leverages can be obtained with brokers based outside of the USA. Some broker platforms have adjustable leverage to lower than 50:1.
Criteria 5 - Find out what are your deposit guarantees. If you make a deposit into a forex brokerage account and the firm goes bankrupt, what protections and guarantees are provided, get this in writing. Is the account insured? Are your funds segregated, safe and fully protected? This forex broker selection criteria cannot be overlooked, keep your funds safe!
Criteria 6 - Traders can use any trading platform they want with Forexearlywarning, we suggest starting with Metatrader, which is available from most brokers. After you get more experience with our trading system you can switch to any brokerage platform you wish, including web-based charting and execution systems.
Criteria 7 - You can set audible price alerts on Metatrader very easily, see the image below, price alerts to your cell phone are also available, check with your broker on how to get price alerts delivered to your cell phone via email. We use audible price alerts in the Forexearlywarning trading system so traders can have audible desktop notifications for price breakouts. Price alert points are published in our daily trading plans.
Setting Price Alerts
Criteria 8 - Ask your prospective broker or check their website to see what customer support options they have. Make sure they have phone support, live chat and email support. Also check things like their weekend hours to make sure you get the customer service and support options you want. Many brokers have foreign language options also.
Criteria 9 - Make sure your broker of choice allows you to trade micro lots. Make sure you can set position sizes to 1 micro lot, 2 micro lots, etc. Micro lot accounts are flexible, because traders can continue to scale up to 1 or 2 mini lots just by trading 10 or 20 micro lots. This allows you to ramp up to full scale lots as you are progressing. Trading with micro lots is a bridge between demo and full scale lots, and is always suggested for using with our trading system.
Criteria 10 - Determine what regulatory agency regulates your broker, based on what country the broker is based in. For example the CFTC regulates brokers based in the USA, the FCA regulates brokers based in the UK and the CIPF regulates brokers based in Canada. Here is a list of forex broker regulators for around the world.
Criteria 11 - Forex traders are always concerned with getting the lowest transaction cost or lowest spread, but when comparing two brokers as long as the spreads are reasonably close to each other on the 28 pairs we trade, go with the broker that has immediate trade executions and fills. Since we trade with the higher time frames at Forexearlywarning and tend to stay in trades much longer, having the absolute lowest spreads is not really necessary. Also check your prospective brokers' spreads in the Asian session to see if and how spreads widen during this time. With the Forexearlywarning trading system sometimes you will be executing trades in the Asian session, but only a few times per month. If you would like more information about spreads click on theis article about how the spread is calculated.
Criteria 12 - This is one of the most important forex broker selection criteria. Ask your prospective broker if the trade executions and fills are immediate on market orders. When you place an order to buy or sell you want straight through order processing when you click the button on your computer to buy or sell. No delays and an immediate fill of your order. All trusted forex brokers have immediate executions. Stop order executions are included in this. Sometimes the market pairs have "price gaps" on Sundays at the market open. Make sure all stops are honored and are "guaranteed stops" and read the broker policies about this.
Criteria 13 - When using the Forexearlywarning trading system, we often recommend scaling out lots on profitable trade entries. Be sure your trading platform facilitates this. For example if you buy 5 mini lots and are 50 pips in profit, you should be able to scale out lots (take profit) on 3 mini lots or keep 2 mini lots in your account, or some combination. Make sure your broker can facilitate exiting some of your lots when profitable, it is called "scaling out" lots.
Criteria 14 - If you are able to see a forex broker's reputation online it should be a good indicator as well. Websites like Trustpilot have ratings for trusted forex brokers with lots of written reviews and high ratings. Other websites also have forex broker ratings.
Criteria 15 - How long has the broker been in business. Some brokers have been around 15 years or more, some introducing brokers may have started up recently. When selecting a broker we would suggest looking for long term stability.
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Criteria 16 - Make sure you understand how to fund your broker account and how to make withdrawals. Checks, ACH, bank wires, Paypal, etc.
Criteria 17 - Make sure you like the software, user platform and interface. As far as the user interface on Metatrader, remember Metatrader 4 is how we suggest traders get started with our trading system. After you have been trading for a while, you can start looking at other brokers with different user interfaces and charting systems. You will probably see some other platforms or web-based platforms that could suit your needs. We encourage all experienced traders to try several brokers and trading interfaces to see which ones they prefer. Always open a demo account to see the user interface on any broker, then decide if you like it in demo mode. There is some trial and error here and personal preferences involved. Make sure your platform of choice will allow setting up our free forex trend indicators and moving averages across the standard time frames. The trader/end user should be comfortable with the interface and user experience.
Criteria 18 - When you open a brokerage account all traders must sign off on the brokerage agreement. Please take time to read this document. If there is any dispute between you and your broker on an order execution, this is the document that will govern the outcome with any dispute of any kind including how orders and stops are filled. Remember the only thing that matters is what you have in writing.
Criteria 19 - If you are away from the computer a lot, using your mobile device like cellphone or tablet might be good additions to your devices. Many brokers now offer mobile apps which might be useful when you are away from the computer to manage open trades, scale out lots, or move stop orders. You should also load your broker's phone number on your cell phone.
Criteria 20 - Ease and speed of making withdrawals. Many payment systems are now available to forex traders as more fintech options are becoming available. Forex brokers are offering more ways to get money in and out of your trading account faster.
Criteria 21 - Ability to trade gold with your broker. Due to USA CFTC regulations finding a gold broker might be problematic. Outside of the USA gold brokers are available with high leverage up to 500:1. Forexearlywarning has a great gold trading system as in additon to our trading system for 28 forex pairs.
Role Of The Forex Broker
In addition to these forex broker selection criteria, it is important to remember the role of your broker. Brokers are strictly intermediaries, if you trade more frequently, they make more money. Brokers are not interested in you making a profit they are interested in their own profit. Never get trading signals from a broker, they only encourage scalping and frequent trading, which increase their profit. There are many "forex signals" websites that are sponsored by brokers which is a conflict of interest. Ignore the marketing and sales pitches on broker websites.
Forexearlywarning cannot legally make broker recommendations, but we found two lists of NFA registered forex brokers. These are third party lists from independent providers:
List of NFA Registered Brokers
Second List of NFA Registered Brokers
How do I use this list of forex broker selection criteria? With all of the information in this article, you can now call or email a prospective broker and use this article to ask better questions and get better information.