The forex trading market is the world’s largest financial market by daily turnover. Approximately $5.3 trillion is traded every day across traditional foreign exchange markets and online trading platforms. 

This makes forex trading one of the most compelling instruments for wealth creation. Yet, even with the level of penetration the market enjoys, the big percentage of retail traders continue to lose money. 

Some forex brokers are very open when it comes to risks associated with retail forex trading. Some clearly state that more than 70% of their traders lose money while others have lower figures of about 60%-65%. The high level of losses is down to several factors that are part and parcel of the forex market. 

There are risks that relate to each individual investor, which can be overcome by taking extra trading lessons. There are also market risks that affect specific types of traders, for instance, small retail traders that cannot take advantage of tight spreads. And there are risks attached to specific brokers and brokerage platforms.

Broker related risks can be avoided by taking the time to select the broker that suits a particular trader’s needs. As such, it is important that traders select their broker carefully by considering the key factors discussed below.

Regulation

This is the first thing that every trader should look at when selecting a broker before signing up. While most brokers now have some sort of regulation, it does not necessarily mean that they are authorized to operate in a particular trader’s country of residence. Different countries have different regulatory requirements for a broker to operate within their borders. 

The best example, in this case, is the US, which to this date restricts Contracts for Differences (CFD) trading. Nearly every broker based outside of the US offers contracts for differences trading, which is why traders should be very careful when it comes to assessing a broker’s regulatory statement.

In the US, the Commodities Futures Trading Commission (CFTC) and the National Futures Association (NFA) are the main regulatory bodies for forex brokers. In the UK, it is the Financial Conduct Authority (FCA) and Prudential Regulation Authority while the Cyprus Securities Exchange Commission (CySEC) takes charge in Cyprus, where several EU based brokers are headquartered.

Different regulatory bodies also have placed limits on the maximum leverage that forex brokers can offer to their clients. For instance, in the US, the ceiling is set at 1:50, while in Europe, there are high leverage forex brokers with top leverage of as high as 1:3000. The higher the leverage the higher the risk and the bigger the size of a single position the trader can put given the size of their account.

Type of broker

This factor is also very crucial. Generally, there are two main types of forex brokers. No dealing desk brokers and dealing desk brokers. 

No dealing desk brokers provide their services via Electronic Communication networks (ECN) or Straight Through Processing (STP). These brokers do not take the opposite side of the trade. They also offer floating/variable spreads that are determined by market forces.

On the other hand, dealing desk brokers offer fixed spreads to traders, which also cover their commission for providing the service. As such, they are mostly market makers, which means that they take the opposite side of their client’s positions to fill the trade. This can trigger a conflict of interest.

Therefore, while no dealing desk brokers provide tight floating spreads, they charge service fees and commissions to their clients. On the other hand, trading with a market maker can be risky because of a potential conflict of interest.

Payment options

Traders must check to see whether the broker they want to sign up with provides a varied list of payment options. This provides a degree of flexibility, which ensures that traders will always have access to their funds should local authorities place some limits on digital payments through eChecks and eWallets.

It is possible that some brokers might provide payment options that are not available in a given trader’s country of residence. Others might have low withdrawal ceilings while others might have long waiting periods for withdrawal processing after submitting a request. 

Trading platforms 

These are as equally important depending on the type of trader you are. Day traders prefer brokers that allow them to trade on the go via intuitive mobile trading platforms. Therefore, it is important to select a broker that offers a variety of trading platforms to facilitate on-the-go trading, which means you never miss an opportunity.

Some trading platforms also come rich with algorithmic features, charting tools, and trading indicators. If a trader plans to use an expert advisor (EA), it is critical to make sure that the broker’s trading platform is compatible with the system.

Interactive customer support

Most forex brokers, like several online service providers, provide excellent customer service during lead conversion. But after that, it becomes very difficult to get help. Excellent customer support is the lifeblood of every online service provider and without it, many would go out of business.

However, some tend to forget the importance of it all after completing the acquisition of the client. Therefore, it is important to be keen to look at some of the reviews of the broker a trader is about to sign up with before making the initial deposit.