Every Forex trader must subscribe to a Forex broker to access the Forex market. Forex Brokers are commercial bodies that hold the gateways to the exciting and lucrative world of Forex. However, the vastness of the market allows scammers and reliable brokers to co-reside and promote their services. Newcomers often fall prey to fraudulent brokers due to their lack of knowledge and unawareness. This article will venture deep into the features and services of Forex brokers and enlighten traders on, how to choose the best Forex brokers in 2025?
How to Choose a Forex Broker?
A good broker regulates itself through strict restrictive measures, remains transparent in every step of its service model, and shows accountability for mishaps. To separate a good broker from a bad one, traders must be able to dissect the different services Forex brokers offer, the types of jurisdictions they answer to, the charges they impose, and the functionalities of their trading platforms.
A well-rounded grasp of the following topics will prepare traders for analyzing a broker from its ins and outs:
- Regulatory bodies and how they dictate a broker’s intra-market operations
- Currency pairs and how they are traded on a broker’s platform
- Features of a broker and how brokers charge for their services
Regulatory Bodies and Jurisdictions
Due to the open and decentralized nature of the Forex market, no single institution controls its money flow, price fluctuations, or the activities of commercial entities involved. This lack of regulation often gives rise to illegal brokers who exploit traders through fraud and inflated costs. To prevent this, many participating countries establish financial regulatory bodies to protect their citizens and enforce fair trading policies.
To choose a reliable broker, it’s essential to build an unambiguous knowledge of these regulatory services, their categories, regulatory processes, and judicial coverage. Let’s start by understanding how different regulatory bodies function in the Forex market.
How Forex Regulatory Bodies Function?
Most financial regulatory structures preserve certain rights to oversee and regulate a broker’s activities. These rights are:
Right to License a Broker: Regulators can provide essential licenses to a broker, which work as attestations to the broker’s reliability and ability to follow regulatory codes.
Right to Monitor Compliance: Regulators bear the power to monitor and scrutinize the activities and transactions made by their licensed brokers, and adjust them if found unlawful.
Right to Preserve Transparency: Brokers must regularly provide detailed information about their fees, spreads, transactions, and processes relating to Forex services.
Right to Resolve Disputes: Observing bodies can act as mediators and resolve disputes between brokers and traders by providing legal support if needed.
Right to Fine and Take Judicial Actions: It empowers regulators to charge brokers for their intransparent and fraudulent activities and bring them under judicial scope.
What are the Different Types of Regulatory Bodies?
Most regulatory bodies fall under three different categories due to their distinct regulatory processes and global impact. They are:
Major Regulators
Major regulators are mostly associations from major economies, like the United States, United Kingdom, and Australia, and are known for their strictness in imposing regulatory bindings on Forex brokers and other financial institutions. Such as:
CFTX & NFA of United States
Two major regulatory bodies in the United States are responsible for enforcing financial and legal rules and regulations on brokers and associated firms. The Commodity Futures Trading Commission (CFTC) provides vigilance and regulatory coverage over the Forex market. The National Futures Association (NFA) provides services like licensing eligible brokers, resolving disputes, and tracking their activities and transactions while answering directly to the CFTC.
FCA of United Kingdom
The Financial Conduct Authority (FCA) regulates financial bodies in the UK to enforce transparency and promote competition. Despite being a self-governed institution, the FCA answers to the UK Parliament for its operations.
ESMA of European Union
The European Securities and Markets Authority (ESMA) fosters the ideation of orderly financial markets, enforcing investor protection and maintaining the EU’s economic stability. It demonstrates its power over brokers operating from the European regions.
ASIC of Australia
The Australian Securities and Investments Commission regulates Australia’s entire financial system and operating institutions, including Australian brokers.
CySEC of Cyprus
The Cyprus Securities and Exchange Commission (CySEC) is a European regulatory body that clings to the EU standards of financial regulations and practices an even stricter set of rules to protect investors and check brokers’ eligibilities.
Pros of Major Regulators
- Brokers supervised by major regulators are the most trusted players in the market
- Major Regulators practice strict rules to dictate their brokers’ activities, so chances of being scammed are limited
- Major Regulators prevent any possibilities of price manipulation so trades remain untampered
- Major regulators directly get involved in dispute resolution and take measures if the broker is found guilty
Cons of Major Regulators
- Brokers regulated by major regulators often charge extra commissions and higher spreads to cope with the expenses of their licenses
- Traders may have to pay taxes on their profits
Secondary Regulators
Secondary regulators are mostly based in non-major countries and govern brokers with less restrictive procedures. While their efficiency in surveilling is often put in question, secondary regulators have licensed many brokers located in their respective regions. Here are a few renowned secondary regulators:
FSA of Japan
Financial Services Agency (FSA) is a Japanese government body that is relied upon to oversee and discipline Japan’s financial system to ensure its stability. The FSA is responsible to observing and mandating the Securities and Exchange Surveillance Commission (SESC) and the Certified Public Accountants and Auditing Oversight Board (CPAAOB).
IIROC of Canada
The Investment Industry Regulatory Organization of Canada (IIROC) regulates most brokers based in Canada by setting standards and implementing its quasi-judicial powers of suspending, fining, and expelling its registered members.
FINMA of Switzerland
Swiss Financial Market Supervisory Authority (FINMA) is a Switzerland-based financial governing body that has global respect for its regulatory procedures. For its definitive standard for ensuring the hughest level of preventive measures, FINMA only allows brokers that are lawfully registered as banks.
Pros of Secondary Regulators
- Trustworthy institutions globally recognized for their efficiency in enforcing protective and preventive measures
- Provides regulated funnels for resolving disputes
- Orders and mandates brokers with compliance rules and instructions to check anomaly
Cons of Secondary Regulators
- Less restrictive than major regulators
- Offered compensation schemes cover a lesser volume compared to those offered by major regulators
- Authorised brokers are less reliable than those governed by major regulators
Offshore Regulators
The Offshore Financial Centers (OFCs) is a combined regulatory body comprising countries like Belize, Mauritius, Vanuatu, and the British Virgin Islands. The OFC, as a regulatory body, follows a more open-minded procedure, as it bounds its licensed members with less restrictive regulative measures. That’s why most brokers choose to operate their activities under the OFC supervision. Here are a few examples of offshore regulators:
FSC of British Virgin Islands
The Financial Services Commission (FSC) has a mass identity as an offshore broker. It’s jurisdiction is much more lenient than major and secondary regulators and provides license at a low cost.
CIMA of Cayman Islands
The Cayman Islands Monetary Authority (CIMA) executes regulatory operations for Cayman Island’s financial system. It also provides less demanding broker licenses.
IFSC of Belize
The International Financial Services Commission (IFSC) is Belize’s financial regulatory service that provides licences to Forex broker imposing nominal boundaries.
Pros of Offshore Regulators
- Brokers licensed by offshore regulators are allowed to offer more assets to individual traders than the ones regulated by major or secondary regulatory bodies
- Offshore brokers are allowed to offer more investment opportunities that traders can take leverage of
- Brokers can provide a range of dynamic options and strategies on their platforms as they are not limited to practicing only a few strategies
Cons of Offshore Regulators
- Offshore brokers are regulated by little restrictions, exploiting broader chances to engage in fraudulent activities
- In several countries like the USA and Canada, trading with offshore brokers is illegal
Forex Currency Pairs
An aspirant trader should start his Forex education by learning about currency pairs. Because in Forex trading, currencies are the liquidable assets. Traders buy one currency in exchange for another. Without having a basic understanding of the overall concept of currency pairs and the key terms associated with them, no one can navigate the Forex market with confidence.
What is a Currency Pair?
Currency pairs are quotations of two currencies where one currency is quoted against another. These quotations sit next to each other and displayed as a pair where the first one is called the base currency, and the second one, the quote currency.
The currency pairs inform a trader about the required amount of a quote currency to buy a single unit of the base currency. In every buy order, a trader decides to buy the base currency by selling the quote currency. For example, if you are to trade on the EUR/USD currency pair, you are to buy EUR from a trader or institution while selling your USD to them.
What are Bid and Ask Prices?
A transparent understanding of the bid price and the ask price will help a trader calculate a spread, about which we will discuss later. Traders will find the bid price and the quote price located by the quotation statement of a currency pair on trading platforms.
Bid Prices: A bid price denotes the price at which a buyer wants to buy a currency pair.
Ask Prices: An ask price denotes the price at which a seller wants to sell a currency pair.
If a trader wants to buy a pair, he has to pay the ask price to the seller, and on the contrary, if he wants to sell a pair, he receives the bid price from the buyer.
What is a Spread?
A spread refers to the cost a broker charges for every transaction of a currency pair. Traders can easily calculate a spread by subtracting a pair’s bid price from its ask price. A spread is also a major indicator of a pair’s liquidity level. A short spread is usually an indicator of the higher liquidity condition of a currency pair. It also dictates that a broker is charging fairly low for a pair’s transactions.
Features of a Broker
Each Forex broker differs in their offerings and costs. It’s mandatory for a trader to consider these features before opting for a Broker.
Margin Account and Leverage
Once you grow as a trader and become better at identifying opportunities, you may want to engage in a position that exceeds your trading capital. Having a margin account provided by brokers enables a trader to use leverage and trade higher volumes of an asset beyond their account size. Let’s get into more details:
Margin Account
Most brokers offer traders the convenience of borrowing a certain proportion of cash or leverage against their account size. Traders can invest the cash in purchasing their desired currency pairs. A margin account is a brokerage account opened by traders through which they conduct such leveraged trades.
To open a position using the leverage, traders must deposit a minimum equity called margin. The required margin amount varies based on the issuing broker, tradable currency pair, and the position size. A 4% margin rate for a currency pair means, a trader must deposit a minimum of $400 as margin to open a position that worth’s $10,000.
Leverage
The leverage ratio denotes the size of a position a trader can open against their margin. The calculation of the leverage ratio is simple:
Leverage ratio = Total volume of the position / Required Margin
If a trader has a total of $1000 in their margin account, a 1:10 leverage ratio enables him to open a position worth $10,000. If the situation goes south and the position sees loss, the margin amount will be taken by the broker as collateral. Choosing a forex broker who offers a high leverage ratio will help a trader take leverage of a high potential opportunity.
Commissions and Swap Charges
Brokers charge a fix amount of commissions for their services ranging from low to high based on their locations, quality of services, and company size. The charge may also vary based on the type of account you want to open.
Swap charges should be considered before choosing a broker. These charges are imposed on over-day trades where a trader pays or gains a certain interest rate or swap charge on his transactions between two currencies. This charge depends on the interest rates of the currencies attributed to their respective governments. The charge may also based on your position size, broker, and duration of holding the position.
FAQs
What are the criteria for selecting a suitable broker?
The first step to choosing a suitable broker is learning about the Forex market. Traders must put effort into understanding currency pairs, trading procedures, spreads, different trading styles, and the features of a good broker. The broker must be backed by a license from a reliable jurisdiction and transparent in its activities and charging.
Who is the most trusted forex broker?
Here are a few trusted brokers’ names who are renowned for providing exquisite customer experience:
How do you trust a forex broker?
Before opting for a forex broker, you should check their licenses, governing bodies, and track records. Join online trading communities and check reviews and opinions on different brokers. Ask veterans for advice and contact past users to know the reasons why they left a broker.
How to spot a Forex scammer?
A scammer forex broker won’t be registered or licensed by a reliable financial jurisdiciton, or it runs under weak offshore or emerging regulatory bodies. They may not have a physical address or headquarter and their websites will appear newly-made against their claim of years of experience. Another telltale sign of a scammer is that they often decline pleads of interbank transactions.
Which broker is best for beginners?
Here are a few Brokers’ names that are popular among beginner traders:
- Robinhood
- SoFi Active Investing
- Charles Schwab
- J.P. Morgan Self-Directed Investing
- Fidelity
Conclusion
Trading on the Forex market is a nerve-racking endeavour. The market takes no time to shift momentum. Moreover, exchanging currencies involves several types of calculations to manage risks and find a profitable opportunity. The stakes in the market are so high that a trader is required to keep their emotions in check. So, your broker should be the last thing to be worried about while you are trading on the market. Choosing an inefficient, unregulated, and unorganized broker will put your trading career in danger.
