How to choose the best Forex and CFD broker?

The Forex market is a market where daily turnover amounts to as much as USD 4 trillion. Therefore, it is not surprising that many investors want to try their hand at it. The same goes for the CFD market, i.e. the market for contracts for differences. In both cases, in order to start making such investments, one needs to contact a Forex and CFD broker (eg. XTB). Through it, the investor invests on such markets and adopts a strategy that is appropriate for them. What criteria should be taken into account when signing a cooperation agreement with a Forex and CFD broker? Which of its features will be the most important ones?

Opinion among clients

If our circle of friends or acquaintances includes people who actively invest on the Forex and CFD market, it is worth enquiring about their experience in cooperation with brokers on these markets. Perhaps they also have some reservations about brokerage firms or on the contrary — they are able to recommend one of them to us.

Specific legal regulations, largely eliminating brokers that used to manipulate prices or clients’ positions from the market, have now come into force. Brokers operating on the Forex and CFD market are reliable experts in their field. So how are you supposed to choose one of them in order to start investing?

What are the right amounts of commissions and other fees?

A very important issue related to investing on the Forex and CFD market, especially for beginner investors, are the fees involved in it. What costs will be incurred by the investor for generating income? This largely depends on the spreads applied by brokerage firms as well as fees or commissions for execution of orders on behalf of the investors.

However, the choice of the Forex or CFD broker should not depend solely on the spreads it uses. These are not determinants of a good broker. Of course, the amounts of fees and commissions charged by brokers are important, but not the most important. What is more crucial to potential Forex and CFD market investors is whether the broker has appropriate licences and, above all, whether it is supervised by a central institution regulating its operations.

Regulation of brokerage activity

In Poland, brokers’ activity is regulated by the Polish Financial Supervision Authority. However, if we want to conclude a cooperation agreement with a foreign broker, it will most likely not be licenced by the PFSA. Foreign Forex and CFD brokers may remain under the supervision of external regulators, e.g. the FCA in the UK or CySEC in Cyprus. These are just some of many entities dealing with regulation of brokerage activity.

All Forex and CFD brokers operating in the EU are subject to MiFID and ESMA guidelines. This is why we are going to encounter the reduced leverage phenomenon in relation to specific transactions on the Forex and CFD market in their case. However, when cooperating with Australian brokers, no such problems exist and we can use leverage at will.

Important selection factors

In addition to the opinion on the Forex and CFD broker in its field of activity, the amounts of fees and commissions or external regulations, other issues relating to its functioning are also important. We should check whether the broker executes withdrawal orders quickly and how quickly it posts deposits on the investment account. If we already decide to cooperate with a foreign broker, we should check whether technical assistance is available in Polish. We need to know whether it experiences any issues with execution of orders and how it solves the usual disputes that may occur from time to time in relations with investors.