1. Is it Regulated?
The first question you have to ask to yourself is: is the broker I want to use Regulated? There must be no doubt about this first point. All regulated brokers must submit financial reports to regulatory authorities, and when they fail to do it, authorities have the right to charge them or terminate their membership. This forces Forex brokers to keep transparent financial reports.
The brokers must be regulated by their local regulatory authorities, for instance, for brokers based in the US, they must be regulated by the NFA (National Futures Association) and CFTC (Commodity Futures Trading Commission), Swiss based brokers must be regulated by the FDF (Swiss Federal Department of Finance), brokers in UK must be regulated by the FSA and so on.
Also when a Forex broker is regulated it allows investors to dispute any resolution, increasing the investor protection.
2. Trading Conditions
This point refers to the features of the trading platform and the trading conditions with the chosen broker. Amongst the most important factors are:
Spread - Obviously the smaller the spread on currency pairs the better the conditions are for investors and traders.
Platform execution - Trading execution refers to how fast and consistent are the execution of trades. Some brokers guarantee fast and transparent executions during normal market conditions.
Fractional trading – Some brokers allow investors and traders to trade on a fractional basis, instead of trading full lots “100,000 units” or “300,000 units”, they allow you to trade “163,345 units” or “325,911 units”. This is very helpful for trades risking a certain percentage of their balance on each trade.
Safety of funds – We need to make sure our trading funds are kept in a segregated account or at least insured.
Trading platform – Easy to use and understand platform, is it reliable during fast moving markets? And what extra features it offers.
Minimum investment – What is the minimum amount of money required to open a trading account? This aspect is very useful because before trading your full account, you need to test the waters and see how well you perform with an account containing limited funds (after trading a demo account).
Margin (leverage) – What kind of leverage can be used with the chosen broker? Just to make sure our leverage requirements by our Forex strategy and methodology (leverage above 100:1 is not advisable).
Commissions – Some brokers charge commission, it is ok if they do if the spread is smaller than other brokers.
One click dealing – If your trading style is for the very short term and you need to get in the market as fast as possible once you get your signal this might be a good feature for you.
Advanced type of orders – Your strategy might need to be to use two orders and once the first once gets triggered you want your platform to cancel the other (OCO orders), etc.
Support for mobile devices – excellent when you have a day job and need to be connected to monitor your trades at all times.
Trade directly from the chart – Some traders like to trade directly from the chart, sometimes it can take a few seconds to switch from the chart to your quote panel where you enter your trades.
Trailing Stop – Nice feature for trend traders and traders who like to lock in some profits as soon as the market moves in their favor.
And there are might be other features that could facilitate your trading experience.
Try to have a list of those features so you can test them on many platforms. Take in consideration that probably you won’t find a single broker with all the features you are looking for, so you will need to stick to the ones that have the features you feel are most important to you
Hopefully you have shortlisted some brokers at this point. You should have 3 or 4 finalists. In this step do some research on forums, ask other traders about their experiences using their brokers, and so forth.
Some forums where you can ask for broker information are: ForexFactory, BabyPips, ForexNews. There are also some review sites where you can post your reviews and read what others are saying about specific brokers: ForexBastards, TheForexReviewer and Forex Anonymous. Be careful though, some of these reviews might be generated by the same person who really got pissed at the broker for something irrelevant: like an order not filled during an important announcement (we all know it is difficult to get one filled due to the volatility), etc. Please focus on those reviews that really say something relevant and give some kind of “proof” of what they are saying.
Amongst the aspects you should ask and get informed are:
Customer service – This aspect is the most important of them all, are they rude to customers? Are they willing to help customers? These are the questions you should ask in forums and fellow traders.
Slippage – Slippage is the difference between the price where the trade was executed and actual value of it. Do they honor stop loss and take profit levels? Do they guarantee it? If any one had any discrepancies, did their broker reverse the result?
Manual execution – Some brokers don't like scalpers, if they catch someone doing it, they will put this trader into manual execution, so a dealer (human) must accept all transactions made by this trader. Do they do this?
Re-quotes – a re-quote happens when you click the buy/sell button and the platform doesn't accept our price, so it will give us another quote for that particular trade.
If brokers are registered by their local regulatory authorities, you can visit the regulator website and you will find plenty of information about Forex brokers. Some of them publish resolutions regarding Forex brokers.
In this phase we should test your final list, first on a demo account to see how it works, if it fits your trading style and your system. If you are satisfied with the results, then try the same platform with limited funds to see how it performs on real trades. If you are satisfied again then open your full trading account with the chosen broker.
I hope this checklist help you all take the right decision when choosing brokers.
Success in Forex = Learning + Practicing + Update Knowledge