April 6, 2022

A beginner’s guide to picking the right Forex broker in 2022

Forex trading is a booming business. It is becoming more and more popular, and its daily market turnover has reached 6.6 trillion, as reported by Yahoo Finance. But there are a lot of specifics that you need to consider before you embark on your Forex journey, and none are as crucial as picking the broker you will have to deal with.

There are a lot of things to consider when picking a company – its regulation, its trading conditions, and so on. In the article below, we have covered all of them in the hopes of providing a new trader with the necessary information about what is currently considered to be a profitable and competitive Forex broker. However, if you are an experienced trader looking to diversify who you deal with, we believe the article can be useful to you too.

Without further ado, let’s start with what is the most important aspect of a broker you need to take into account before opening one:

Why is it important for a broker to be regulated?

For a broker to be regulated means, in broad terms, that the company is under the oversight of one of the regulatory bodies of the world. These governmental bodies represent a certain guarantee for the legitimacy of a broker. Without it, it is incredibly likely you are dealing with an offshore company – and nine out of ten of them are scammers. What’s more, the tenth unlicensed company is statistically likely to go under due to the incredible volatility of the Forex market and take your money with it – and your deposit will be lost regardless if you choose to use an offshore broker for it!

Regulation solves this, as regulated brokers are required to comply with specific policies, depending on the body that has issued their license. For example, US forex brokers are regulated by the NFA and the CFTC. These regulators are among the strictest in the world, and they demand that companies that get licensed with the regulators hold a significant amount of capital to their name – $20 million. This is a precondition for getting a license, and no company can obtain one without having covered it. What’s more, there is also the requirement for companies to report on a daily basis on open and closed trades, which makes it impossible for them to fix prices or engage in any of these kinds of market manipulation – not without being heavily penalized by the regulators, at least.

The approach to regulation varies, and what body you deal with will determine what protections you may use – for example, the EU regulatory bodies demand a much lower capital requirement to grant a license – €730 000. This is still a significant amount, but nowhere near as close as the NFA has it. The protections these bodies have for the retail client are on a different axis – they have brokers overseen by them to provide access to Negative Balance protection, which makes it so no client can lose more money in a margin call than what they have invested.

In conclusion, regulation is a rather complex topic – but it is absolutely crucial that the broker you aim to deal with has it covered. And considering that most offshore brokers lie about it in some capacity, do not hesitate to check with the regulatory body that the firm claims to be overseen by – that is the only way you can know that you are actually dealing with a legitimate firm!

What trading conditions are considered good in 2022?

The other important aspect of a broker that needs to be considered before you engage with it is the actual trading conditions the company offers. These can be the leverage it has available, the spreads and commissions associated with trading on its platform, and the mining deposit.

When it comes to leverage, the amounts that brokers can offer are actually heavily regulated right now. This is because high-leverage trading is quite dangerous to the retail trader, as it could easily cause a margin call. Most regulators allow for amounts of up to 1:30-1:50 for Forex assets. However, there are a lot of brokers out there that offer much higher amounts – and most of these are unlicensed companies that are trying to attract more clients. Of course, there are also legitimate firms that provide access to that kind of leverage, but you should be really careful when considering dealing with such a company – leave the higher leverage amounts to experienced traders, and if you are one, pick the broker to trade with care.

Secondly, spreads and commissions are the ways most legitimate brokers make their money nowadays. The spread is the difference in the asking and selling price for assets – brokers keep this amount from each position that is open. Normally,  spreads are no higher than 1 pip for FX majors like the EURUSD – anything more is rather excessive. However, there are also a lot of great zero-spread brokers out there. These companies provide access to trading with no spreads and charge their client a commission. This commission varies, but it should not cost you more than $10 on average to open and close a trade worth one standard lot (100 000 units of the base currency).

Finally, the minimum deposits that brokers have nowadays are much lower than at any point in the past – they are as high as $10 for one of their micro accounts and something like $250 for a standard account with a legitimate company.

What about bonuses?

If you are a new trader, it might seem quite lucrative to trade with a company that offers some kind of bonus. The added funds can elevate your trading and allow you to open positions you could not otherwise. But, there is a danger to trading with a bonus as well – these trading promotions have been coopted by scammers and bound with Terms and Conditions that make it impossible for money to be withdrawn from accounts credited with a bonus. These are usually turnover requirements that no client can hope to achieve. This abuse has led to the provision of bonuses being outlawed in most of the world – there are still legitimate and licensed brokers that have them available, mind you, but they are few and far between! Therefore, you should be very careful when deciding to make use of a bonus!

Where to find such worthwhile brokers?

If what we have said has inspired you to take up trading Forex, you can head over to some of the many websites with in-depth reviews of all sorts of brokers – from industry leaders to malicious scams. Pay special attention to the review date – legitimate websites regularly update their reviews; as the broker’s trading conditions can change, it can launch a new trading platform or acquire a new license.

About the author 

Kyrie Mattos

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