10 Things to Consider When Choosing a Forex Broker

1. Regulation: Since there is no central exchange, the forex market itself is unregulated. However, reputable forex brokers are regulated. If the forex broker is located in the US they should be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission(CTFC) and a member of the National Futures Association(NFA). NFA registered brokers are listed on the NFA web site.

2. Initial Deposit: Ideally you should look for brokers that require a low initial deposit. Deposits for micro or mini accounts should range from $100 – $500. Deposits for regular accounts can range from $1,000 – $5,000 or more. While you want the initial deposit to be as low as possible, you don’t want to deposit such a small amount that your account will be depleted after only a few losses. Only invest what you can afford to risk.

3. Spread: The spread is the difference between the bid and ask price and is how forex brokers make their money. Naturally we want the spread to be as low as possible. The spread range for the most commonly traded currencies is 3-5 pips. Look for a broker that offers a fixed spread rather than a variable spread that adjusts to market volatility. Variable spreads can negatively affect your trade and can sometimes take you out of the market by hitting your stop orders prematurely.

4. Currency Pairs: Look for a broker that offers the most liquid currencies traded against the U.S. Dollar including the Japanese Yen (JPY), Euro (EUR), British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD), New Zealand Dollar (NZD) and Australian Dollar (AUD).

5. Lot Size: If you are new to trading forex then you will want the minimum lot size to be as small as possible. Micro accounts have a lot size of $1,000, mini accounts have a lot size of $10,000 and regular accounts have a lot size of $100,000.

6. Adjustable Leverage: Leverage allows you to control a large amount of money using only a small amount of money in your trading account. Look for a broker that allows a leverage of 100:1 – 400:1. Many brokers allow you to select a leverage ratio as low as 20:1 which lowers your total risk but also lowers your potential profit per trade as well. Even if you do not use the higher leverage, a ratio of 100:1 – 400:1 is a very nice option to have.

7. Trading Platform: The trading software should be intuitive and easy to use with extensive technical analysis tools. Always take the broker’s trading platform for a test drive using a free demo account to familiarize yourself with its use before trading with real money. Do not use a broker that has trading software that is difficult to use or does not allow for fast and easy order placement.

8. Customer Support: The currency market is open 24 hours a day and so should your forex broker. You should be able to call your broker any time of day if you have a question about an order or are having trouble placing orders, etc. Some brokers offer live chat from within the trading platform itself which is a big plus.

9. Account Funding Withdrawl: While most brokers all use the same methods of account funding and withdrawls, look for a broker that features the convenience of account funding and withdrawl by credit or debit cards. Account funding by credit/debit card is almost instantaneous and withdrawls are much faster (usually 1-2 days) than waiting for funds sent via check.

10. Reputation: You can research forex brokers using forex message boards such as Forex Factory. Rather than concentrating on isolated comments of good or bad, look for an overall picture of how people feel about a particular broker. One person with a bad experience does not necessarily mean a broker is not trustworthy. When in doubt simply make a post and ask for feedback on any broker you are considering.

Choosing a forex broker does not have to be difficult if you know what to look for. These 10 things to consider when choosing a forex broker should help you choose a broker that is right for you.

Source by Mark Crisp

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