Choosing a Forex Broker in 20 Easy Steps

Introduction

You are probably on the way to be a millionaire. Well, if having good knowledges is important for full success, your sucess also depends on your broker. So before Trading in the FOREX (FOREign Exchange) Market, choosing a good broker is a milestone.

A broker is merely an intermediary (a middleman) between YOU as a person and the very FOREX market. The broker (an individual or a corporation) will actually carry out your orders to buy or sell currencies.

Now we are going to browse the following 20 items you need to find the proper broker that you will work with.

1. The Trading Platform

To send a buy/sell order to your broker you use a computer software called a 'Trading Platform'. Most of them comes with a demo account. Using the demo account to check the software for ergonomics (comfortable in use), fast execution, slippage (difference between the price of a currency at the order and the price of the currency at execution), charts, etc...

2. The Leverage

The Leverage enables you to take a position more important than the capital you invest. The greater is the Leverage and the greater is the risk to lose your money. So, for the purpose of limiting the risk the leverage should be lower than 10.

3. The Spread

The spread represents the difference between the Ask Price and the Bid Price offered by a broker. For example if the broker offers a fork of Bid: 1.3600 and Ask: 1.3608 on the euro/dollar that means you can sell the parity to 1.3600 and buy it to 1.3608. The difference between the two prices is 0.0008. We say that the spread is worth 3 pips.

The Spread is important when applying short term trades with few movements in pips.

4. The financial solidity of the broker

The choice of an important broker is very useful. Indeed, with a big capital such a broker can guarantee your deposit.

5. The Language

The main worldwide brokers giving access to Forex are primarily located in the United States. In fact, to be able to invest in this market, it is necessary to speak English and to know a minimum of the American legislation in order to choose the good broker. However, with the growing of individual investment in the FOREX market many brokers provide services in different languages and we can find serious brokers outside the USA, in France for example.

6. The Country

For the same reasons stated above, you can trade currencies while living almost anywhere in the world !

7. The Customer Support Service

Contact the broker via Telephone, E-mail or Live Chat and check the delay of the replies, the availability of the customers service and the relevance of the given answers (are the answers useful to you ?).

8. The Speed of Order Execution

Use the Demo account and the platform to test the broker execution speed.

9. The Margin

The lower the margin requirement (the higher the leverage), the greater the potential for higher profits and losses. The percentages of margin varies from 0.25 and more.

10. The Minimal Deposit Requirements

Most brokers have minimum balances to start forex trading. The lower is the best. In general they vary from $250 to $1,000.

11. The Transaction Costs

Of course, don't forget that the cheapest broker is not the best.

12. The Slippage

About the slippage, it is necessary to rely on comments left on forex forums.

13. The Withdrawal

Ask all informations related to withdrawal. In effect, it is often hard to get your money out of your trading account.

14. Is the FOREX Broker registered ?

If your broker is located in the United States verify if the broker is registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and a NFA member. Theses two organizations (CFTC and NFA) have missions to protect the public against abusive trade practices fraud, and manuipulation.

Contacts:
NFA
Telephone: (800) 621-3570
Website: www.nfa.futures.org/basicnet/

15. The Internet Connection Speed

I stress on the importance for you to make sure you have a high speed Internet connection and a good connection speed.

16. Additionnal Services

A serious broker will provide you with some extra including real-time FOREX quotes, integrated charting and technical analysis packages.

17. Mini accounts

Mini accounts are account with lower minimal requirements ($250 or $300). A mini account is good to get started and test your trading skills and get experienced.

18. Available currency Pairs

The prospective broker must provide trades for the seven major currencies (AUD, CAD, CHF, EUR, GBP, JPY, and USD).

19. Rollover charges

The Rollover charges is the difference between the U.S. interest rates and the interest rates of another country. The greater the interest rate differential between the two currencies in the currency pair, the greater the rollover charge will be. For example, if the British pound has the greater interest differential with the U.S. dollar, then the rollover charge for holding British pound positions would be the most expensive. On the other hand, if the Swiss Franc were to have the smallest interest differential to the U.S. dollar, then overnight charges for USD/CHF would be the least expensive of the currency pairs.

20. Trading Hours

The global Forex market trading hours are: 5:00 pm EST Sunday through 4:00 pm EST Friday. So, make sure your broker allows you to trade in this trading period.

Conclusion

In short since the choice of a broker is extremely important to trade currencies in FOREX market, take time to choose your trader before starting. I especially suggest you to join FOREX forums and get feedbacks and tips from experienced traders.

by Stephane Kouakou

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