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Five Questions to Ask your Forex Broker

Five Questions to Ask your Forex Broker

Beim Daytrading geht es darum, von der kurzfristigen Preisbewegung eines Vermögenswerts zu profitieren. Im Gegensatz zu langfristigen Anlegern wetten Daytrader nicht auf die Stabilität der Preise. Stattdessen kaufen und verkaufen sie einen volatilen Vermögenswert am selben Tag, um am Ende mehr Geld zu haben, als sie zu Beginn der Sitzung hatten.

First Published date: 20. August, 2022
Last Updated: 16. February, 2023
Fact-checked by Adrian Müller

Trading forex with a broker makes the experience more seamless. However, you still have to put in the work. But a good forex broker does make things easier. You can choose the right broker based on your trade plan and goals.

Whether you are choosing your first broker or switching from one, there are some essential things you need to ask. This guide will discuss the top five questions to ask your broker before choosing one.

Table of Content

Why Having a Forex Broker is Important?

Working with a forex broker helps you trade international markets. There are many other benefits too. When you are trading forex exchange, you are purchasing currency pairs.

The forex exchange market has pairs like EUR/USD or GBP/USD. A broker has a couple of benefits. Firstly, they allow you to buy and sell currency pairs.

You can do this without having to jump through a lot of hoops. Secondly, you can start trading with less capital. It is especially true now compared to when there were no forex brokers.

Traders that wanted to trade international currencies needed significantly more capital than they do now. Forex brokers now act as an intermediary. As a result, the process is easier and more accessible.

As you can imagine, you will be working closely with your broker. Therefore, it is worth putting in the effort to choose the right one.

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79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Reputation, History, and Transparency are Important

When you trade forex, you are spending real money. Of course, the goal is to make a profit. But sometimes, things go differently from how you want. In case of a trade dispute, transparency and regulation are crucial.

That is why you must understand that transparency is vital for a broker. You need to trust your broker when you raise a claim.

In addition, the broker’s history is also very important. We will jump into the questions to ask your broker shortly. However, before that, we need to discuss the other related aspects. Many underfunded brokers have shut down, leaving their clients stranded.

That is why you should look into your broker’s history. Do they have any run-ins with the law? Are they transparently operating their business? Reputed brokers will not hide any information from you. The simple thing to understand is when you can trust your broker – it is much easier to find success in forex trading.

The Top Five Questions to Ask When Choosing a Forex Broker

There are tons of good forex brokers available. You can check out this list for a brief overview of the best forex brokers.

However, you need to know how to choose the right one. For that, you need to ask questions. More importantly, the right questions.

Asking the right questions will help you gauge the quality of their services and whether they are regulated. Here are the top five questions you should ask your broker:

1. Ask About Their Spreads and Other Charges

Forex brokers primarily make money through spreads and commissions. Therefore, what their commissions and spreads are is crucial to know. Brokers might charge specific fees and other charges too. Standard broker charges might include the following:

  • Spreads
  • Commission
  • Markups
  • Additional fees

Spread

Spread costs can add up quickly. That is why you should always understand a broker’s spreads beforehand. Many traders do not make a profit because of their broker’s high spread.

Your broker might offer you fixed or variable spreads. Fixed spreads are great for certainty. You will always know how much you will pay in spreads. On the other hand, variable spreads give you flexibility.

There might be times when you pay less. However, there can also be times when you end up paying more.

Regardless of fixed and variable spreads, you must consider market volatility. When market conditions are uncertain, brokers apply something called slippage. Short-term forex traders prefer to avoid slippage. Ideally, if you want the greatest return, you want the costs to be low.

Commission

Similar to fixed and variable spreads, commissions can be fixed or relative. Commissions are extra charges brokers charge you for each transaction. It is another way they make money. With a fixed commission, you will pay the same amount.

The number of transactions is irrelevant in this case. However, if the commission is relative, calculations are based on the number of transactions conducted.

Trading beginner - Plus500 -white

Plus500 is a trusted global brand that offers an easy-to-use trading platform for online traders, alongside access to share trading, crypto and a thorough selection of CFDs.

79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Markups

Markups are tricky. They are a charge on top of the spread. Even though they reduce transparency, you can calculate your trading costs easily. A lot of traders like how uncomplicated it is. Well, at least, relatively uncomplicated.

Additional Charges

Depending on your broker, there can be other additional charges. They could range from margin costs, inactivity fees, over-the-phone support fees, and more. In addition, some brokers may also charge a fee for positions held overnight.

Thus, choosing a broker with low spreads, commissions, and additional charges will keep costs down. However, this is a tricky balancing act, as having the lowest spread and commission does not automatically make a broker the best choice.

There are other factors like regulation, experience, and more. So, you should not only rely on their spreads and commissions. Working with a forex broker can be a long-term endeavor – if you do it right, that is. So, the other questions below are important too.

2. Are They Regulated?

If you want a seamless forex trading experience, choose a regulated broker. It will give you some peace of mind. Most reputed brokers make it easy to check whether they are regulated.

So, even if you are new to this, it will not be difficult. Most forex brokers happily provide details about their regulators. They do this because it gives traders more confidence and acts as marketing.

Regulators like the U.S. Commodity Futures Trading Commission or the U.S. National Futures Association are good names.

Working with a regulated forex broker also allows you to manage risks. You can assume (to some certainty) that they are trustworthy and reputable. You can check out this guide on U.S. regulations for forex brokers.

However, there is another thing to note. The same broker can have different regulators if they operate in other countries.

According to local U.K. law, other associations might regulate a broker in the U.K., and these laws can be different.

3. The Service Suite

When choosing a broker, you are trying to make forex trading seamless. Ask your broker what their service suite is like. In other words, what kind of features and services do they provide to their clients?

The problem is that not all brokers provide the same features and services. So, when choosing a premium broker, check out the service suite and compare it with other similar-class brokers.

However, note that brokers who provide the broadest range of services might also charge more. So, it is up to you to decide which services are essential.

4. Are There Trading Restrictions

If you are not aware, certain trading restrictions can catch you off-guard. That is why it is important to check whether there are any leverage or hedging restrictions.

In some cases, the restrictions are not due to the brokers themselves. Regulatory bodies can put restrictions on this. Here are some of the important limits you should be aware of:

Leverage Restrictions

Leverages are great. They allow you to get greater returns on your investment. However, these can be restricted depending on various things. The first thing is, of course, the broker’s size. Smaller brokers will naturally have more restrictions than larger ones.

Anti-Hedging

Hedging restrictions will not affect stop loss. But it does affect how central banks conduct business. The NFA stated that multiple positions with the same currencies need to be offset on a FIFO basis.

This rule was put in place in 2009. If there are no anti-hedging restrictions, the order flow and price discovery could be impacted a fair amount. However, restrictions like this should not affect your overall strategy.

Other Restrictions

Brokers could place other restrictions on traders. One such condition could be limiting orders based on the same type of execution. Therefore, when choosing a forex broker, you should consider the restrictions.

This way, you can be sure how trading with them will go, and there will not be any nasty surprises later on.

Award-Winning Trading Brokers:

Trading beginner - Plus500
etoro
Trading beginner - IG

Rating:

(5/5)
5/5
(5/5)
5/5
(5/5)
5/5

Regulated By:

FCA, CySEC, ASIC, FMA, FSA, FSCA

CySEC (EU), FCA (UK), ASIC (Australia)

BaFin, FCA

Demo Account:

✔ Free

✔ Free

✔ Free

Live Account:

$100

$200

0

Spreads From:

Variable from 0.5 bps

Variable from 1.0 bps in EUR/USD

Variable from 0.4 bps

Selection Of Instruments:

2000+

1000+

17.000+ (FX, Stocks, CFDs, Commodities and more)

Support:

24/7

24/7

24/7

Payout:

1 – 3 Days

1 – 3 Days

1 – 3 Days

79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

5. Pricing and Order Execution

Every forex trader wants to make a profit. That is the ultimate goal. To be profitable, one important thing to understand is where the broker’s prices come from. In addition, you should also ask who executes the order. This is because pricing and order execution go hand in hand.

With forex trading, you trade currency pairs. This is the crux of forex trading. However, the market works in complex ways, and the prices of the pairs can depend on many factors. You, as the trader, need to be always informed.

So, ask your broker where the prices come from, which means how they are calculated. The goal here is to know whether you are getting competitive prices. There are mainly two methods – dealing desk execution and no dealing desk execution.

Dealing Desk Execution

If the dealing desk execution method is followed, the broker creates the price and executes the order. Moreover, the spreads, bid, and ask price differences are fixed. They can potentially be higher than the variable spreads in some cases.

Traders should also be careful about restrictions. Dealing with desk execution often comes with certain limitations.

No Dealing Desk Execution

Market bidders are responsible for bidding and asking prices. They do this through the forex broker’s platform. Unlike the dealing desk, where brokers execute the order, in this method, the market makers are the one that executes the order.

A positive thing about this method is that there are no restrictions, unlike with dealing desk execution.

How Do You Find the Right Broker?

All the scrutinizing and asking questions boils down to finding the right broker. So, how do you find a broker that is right for you? Well, there are no straightforward answers.

The five questions we mentioned are simple tools. You can use these to filter out brokers that you do not trust. They will also help you decide which broker will best suit your needs. In addition, you can also try using a demo account.

If you are torn between two or three brokers, using a demo account can help you gain close-to real-world experience. Most reputed brokers will have a demo account feature. You can open one for free and trade with ‘virtual’ money. Then check to see which one you enjoy more.

Also, forex trading is dynamic. You need to be ahead of the game constantly. Keep learning new things and strategies. Learn how the market works and how brokers work more deeply. With that knowledge, you will be well equipped to make better decisions that drive you towards your forex trading goals.

Trading beginner - Plus500 -white

Plus500 is a trusted global brand that offers an easy-to-use trading platform for online traders, alongside access to share trading, crypto and a thorough selection of CFDs.

79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Wrapping Up

Remember that a broker is important in your forex trading journey. Traders mostly buy and sell currency pairs through brokers. As a result, asking questions and scrutinizing your broker is crucial. Asking your broker about commissions, spreads, and additional charges is a must. Also, do not go with an unregulated broker. Many regulators can help you be at ease when trading with real money.

In addition, apart from the pricing and execution, a broker’s history is also important. The above questions should give you a good idea about the brokers. However, you should also do your research and read reviews. You can talk to other traders who worked with a particular broker. The goal here is to choose a broker that is right for you.

About the author – D. Schmidt

I’m a German stock trader who has lived around the world. I travel extensively and believe that my experiences give me a unique perspective on global markets. I love trading! It’s always exciting to see what happens next. My goal is to help people understand the game so they too can enjoy it to the fullest. In this blog, I will share some tips and tricks that helped me along the way.

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