Choosing a Reputable Forex Broker

Choosing a broker for your forex trades can be an overwhelming task. There are so many! What do you look for? What questions do you ask? How do you know if a company is reputable? It's very important to do thorough research and well worth the time and effort to both save and make you money in the future. Following are some criteria to help you with your decision.

You want to begin with a list of companies that are reputable. A good place to start is an internet forum used by foreign currency traders where you can ask what brokers they use and recommend as well as brokers you want to avoid.

Since there is no central governing body for the forex market, it's important to choose a company that is operating in a country with strong regulatory requirements. These include the US, UK, Australia and Hong Kong. In the US, for example, forex brokers are required to be capitalized with a minimum of 20 million dollars to insure the protection of their clients' funds. The better capitalized the company, the more likely it is to be able to protect your funds in a time of crisis.

Find out if your potential broker is registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC). Also investigate the broker through the National Futures Association's (NFA) Background Affiliation Status Information Center (BASIC). The NFA website is a valuable resource for potential investors.

Brokers earn their money through commissions and fees. Many charge you a spread which is the difference between the buying and selling prices for a currency pair and can vary depending on the type of account you open. Look carefully at what the company's rates apply to. There may be a higher brokerage fee for different trading instruments that rarely apply to the types of trades you place.

Read the fine print. Many companies will tack on extra hidden fees that can add costs to each trade. They can include charges for transferring funds, insurance, administration charges and the like.

Other things to look for are available currency pairs, interest rates on margin accounts, and trading hours. You will also want to know the broker’s margin and minimum trading size requirements. Compare brokers' policies since one might offer higher margin accounts while another may have lower transaction costs.

The trading software offered by Forex brokers is an important factor in your decision on which broker to use. This software, or trading platform, will enable you to research currency pairs and place orders.
Open a demo account, so that you can try out their platform before you sign up and execute real trades.

Things to consider in evaluating the platform are:

1. Is the software easy for you to use? If it isn't, then it won't be much good to you.

2. Does it include your account information? It should display your balance, available margin, your gains and losses so you can track and manage your trades.

3. Does it give you real time quotes?

4. Does it allow instant execution of a trade?

5. Are there technical analysis tools? Look for a broker that offers charting and analysis software that suit your needs.

Once you've done your research and found the reputable company with the platform suiting your needs and trading preferences, you will decide on the type of trading account. There are several types to choose from:

1. A mini or micro account is a good way to test the waters and is good if you don't want to take big risks. A mini account requires only a small initial investment that you can hopefully grow to open a standard or normal account.

2. The standard or normal account is the most risky but the most profitable. The initial investment requirements are larger with the advantages including higher leverage, better margin requirements and lower margin account interest rates. Only experienced forex traders should open a standard account.

3. Managed accounts are accounts where the foreign currency broker makes the buy and sell decisions and handles the account. Your only task is to secure your capital.

Now that you’ve picked a broker and decided which type of account to open with them, you are ready to begin. Go forth and trade!