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How to Find a Reliable FX Broker

Online trading has exploded over the last decade or so. So much so that it has been transformed from the exclusive pursuit of suited city boys, into a lifestyle product that even soccer moms have access to. This increase in availability and interest has led to a surge in the number of online brokers competing with one another for your trade.

With so many outfits out there all vying for your deposits, are there any quick and dirty ways to help you pick out a reputable online forex broker from the crowd? Read on to find out how to separate the good from the bad, the fair from the shady and begin your online trading journey without any false starts.   

Trading Involves High Risk of Losing Your Money

Before we delve into the ins and outs of what to look for when you’re shopping for brokers, it’s important to keep in mind that even if you do find the fairest, most trustworthy broker on the planet, the odds are still very much stacked against you.

As with any competitive endeavor where the rewards are great, the minority inevitably takes the lion’s share of the spoils. Estimates regarding the performance of retail forex traders vary, but an often quoted statistic is that anywhere between 70-90% of retail investor accounts lose money when trading CFDs, with most newcomers to the forex markets blowing up their accounts within three months of their first trade.

It’s quite a sobering statistic, but if you truly believe that you have what it takes to be a successful trader, it should be borne in mind in order to keep your expectations realistic.  With that out of the way, on to the things that beginners to the forex industry should look out for when shopping for brokers.

Test Their Support Team

Every business pays lip service to its customer support. Have you ever heard of a company playing down it’s customer service? It’s just one of the boxes that you have to tick when it comes to promoting your business.

However, your online broker’s customer support is much more important than you might think. Certainly more important than your favorite online retailer’s customer service. When trading live your actual money is on the line so if anything goes wrong with your broker’s platform or feeds, it’s imperative that you can immediately get hold of someone to assist you. Much more so than if your linen slacks arrived a size too small.

As a trader, customer support is your lifeline to the real human beings on the other end of the trading platforms that you stare at all day. For this reason they had better be available, knowledgeable and actually have the authority to escalate your issue so that the relevant decision makers within the company can assist you. In a world where many businesses get by on flashy websites, it’s important for you to quickly be able to reach someone who is actually able to help.

We suggest that when narrowing down your options, you test their support team at different times of the day via all of their various available contact methods.

Read Their Content

Taking the time to actually read the content that they publish is another very handy way to find out who you’re dealing with when on the hunt for an online brokerage.

What do they offer beyond the marketing copy? Do they run an active blog? Do they offer analysis and market commentary? What does their education center look like?

Good quality content is still pretty hard to fake well, so all of the above when executed correctly are a good sign that you’re dealing with a brokerage that is acting in good faith.

You won’t see it as much from those whose business models revolve around converting you, getting your minimum deposit in at all costs and then replacing you with someone else when they burn you as a lead. Keep in mind that this isn’t just about content creation.

Content has to be regularly updated, particularly the news and analysis that typifies a great deal of trading-related content. This is a costly and time consuming thing to manage properly, so a brokerage that has truly gone to the length to create useful, informative content and is prepared to maintain and grow it, is investing money on more than just flashy marketing. This is evidence that you’re dealing with a company that is willing to put its money where its mouth is and offer something substantive to its traders.

Compare Price Charts

Next we go into price discrepancies. Forex currency pairs are not traded on centralized exchanges so trading execution quality varies a great deal. There is no one single venue where forex trading takes place. Forex is completely decentralized, prices can vary from venue to venue and this lack of a canonical price can be taken advantage of by unscrupulous brokers.

The best way to counter this possibility is to not just trust the prices that you’re shown but to compare them to feeds from other providers. In forex trading there will inevitably be discrepancies between price charts but they shouldn’t deviate massively. The general chart shape at a number of different time frames should be the same. Specifically, there should be no random spikes up or down that you don’t see on other feeds.

An easy way to keep track of this is to make a free account with a chart provider like TradingView. Simply keep another window open with a different provider’s price feed on the asset you’re trading. This is a very easy way to ensure that the prices you’re getting are all fair and above board. Again, keep an eye out for random spikes as these can be evidence of stop-hunting.

Understand Slippage

Slippage is a natural occurrence in all markets. It can happen under normal trading conditions but is normally much more pronounced at times of high market volatility or illiquidity. Simply put, slippage is when the price that a trade is actually executed at is different from the price that was initially requested.

It can happen for a number of reasons but usually these have to do with there not being enough liquidity available  at the requested price. This causes the order to be filled at the next best price. The fact that slippage does routinely occur, however, can be used by disreputable brokerages to benefit their own pockets. It’s a very serious offence but it does happen and in many situations it can be difficult to prove that you have been slipped unfairly.

A company that is responsive to your queries and is open to having this conversation with you, is much more likely to be on the up and up than one that won’t even answer your complaints. Also, keep in mind that regulated brokers have very strict reporting requirements. Depending on the jurisdiction, they may be required to document every trade to their regulating body, as well as information on the percentage of trades where negative slippage occurred (execution price was worse than requested), and where positive slippage occurred (execution price was better than expected).

Always look for what jurisdictions a prospective brokerage is regulated in as this will provide you with some clue as to how transparent they are required to be.

Be Hip to Withdrawal Shenanigans

Finally we come to the thorny topic of withdrawals. There are many threads on online trading forums dedicated to some of the unfair withdrawal procedures that online traders have been subjected to over the years.

It’s simple really, if an online broker makes it quick and easy for you to deposit money into your trading accounts, it should be just as quick and easy to withdraw those funds back to your own bank account. That is if we’re not talking about broker offers, such as bonuses and the like, which come with their own specific withdrawal requirements. This is perhaps the surest way to knowing what kind of brokerage you’re dealing with.

Unfortunately, you have to deposit funds first before finding this out for yourself, which is not ideal. For this reason it’s important to do your research. What are people online saying about the brokerage’s withdrawals.

Are they timely? Have they tended to make excuses in the past aimed at delaying withdrawals? Do they publish their withdrawal time-frames on their website? Are these figures in keeping with what their traders are actually reporting on forums and social media?

A well-oiled, reputable brokerage will be dealing with a steady torrent of deposits and withdrawals, all day, every day. They should have it down to a science and when you request a withdrawal it should be as automatic and uneventful as any online transaction that you might make through your bank.

Final Thoughts

As you can see, the best practices above are extremely simple to follow. Regardless of this, many traders choose to ignore them because they’re in a hurry to register an account and get trading as soon as possible. Trading is hard enough to begin with without having the honesty of your broker to worry about on top of everything else.

Every little edge you can gain counts in trading, so it’s paramount that you spend a little more time doing your due diligence and ensuring that you can trade with your brokerage without being taken advantage of. It’s an important relationship, one that definitely has to get off to a good start for you to stand a chance when trading on the world’s largest and most liquid market.

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