What to look out for when choosing a Forex and CFD broker?


Investing in currencies on the international foreign exchange market or on the CFD market (market for contracts for differences) may generate substantial profits. However, before we can conclude any transaction on Forex at all, we need to have a broker, who will act as our intermediary. The investor cannot place orders on the brokerage platform by themselves. They always have to first open their investment account with the broker they choose. There are virtually no restrictions as to whether it must be a domestic or foreign broker. What is more important is whether the broker is regulated, conducts reliable brokerage activities and provides a fully intuitive brokerage platform that offers extensive investment opportunities. How to choose a broker that will help us generate the desired profits on the Forex or CFD market?

The paramount importance of investment security

The most important issue we need to take into account when selecting a Forex and CFD market broker is security of making investments and security of the funds we deposit on the investment account kept by the broker.

The reliability of the Forex and CFD broker is very important and can be verified in a simple way on the lists of regulators in the country where the broker is established. Investment firms, including brokers, are subject to numerous regulations. In Poland, the Polish Financial Supervision Authority deals with these issues, but different organisations are responsible for it in other countries. In addition, all brokers in the European Union are subject to the European Markets in Financial Instruments Directive — MIFID as well as ESMA, which limits the leverage that can be used by investors when making investments, e.g. on the Forex and CFD market.

The broker’s operating model

An equally important issue for us as investors is the business model in which the potential perfect broker operates. It will typically be the Market Maker model, where the other party to the transaction is the Forex broker itself, which can secure our transactions or even assume the risk of failure. This operating model of the broker will be perfect in particular for beginner investors. For others, the STP (Straight Through Processing) broker model may be better, where the broker is an intermediary that processes our orders. At the same time, there is no conflict of interests between the broker and the investor. There is also the ECN model of the broker’s operations, in which brokers recreate the stock exchange system. There is no conflict of interests, the broker operates smoothly and must ensure that as many participants are involved in trading as possible.

The broker’s offer — what do we get?

For most of us, when we choose the broker’s offer, the most significant aspect affecting our decision will be what the broker offers and what costs we will incur when we establish cooperation with it. We will certainly check the spread — i.e. the difference between the best purchase and sale offer — used by the broker. It is the cost that you will certainly incur while trading on the Forex and CFD market.

That is why the lower the spreads are, the better. We still need to check what additional fees and commissions can be charged by the potential broker. Commissions may be collected for opening and closing orders or withdrawal of funds. Some firms are also tend to charge fees for account maintenance.

The next step in selection of our perfect broker will be the extensiveness of its offer and the scale of leverage that can be used. The more instruments are available on the brokerage platform, the better for us because we have a better chance of finding such currency pairs or CFDs that will potentially generate the highest profits. 

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