If you're interested in getting involved in the foreign currency
exchange market, you're going to need a Forex broker. Your broker will
help you set up a Forex trading account and their brokerage will cover
you when trading margins.
There are a lot of different Forex
brokerages out there; it can be hard to choose one which will look after
your interests. Keep reading for five things you should look for as you
examine different brokers to decide which one to open a Forex brokerage
account.
1. Reliability
You'll obviously want to find a
reliable brokerage to work with - the Forex market is not as strictly
regulated as the stock market or other commodities trading markets. The
last thing you need is to open an account with a fly-by-night operation.
If
you're in the US, check if the broker you're thinking of opening an
account with is registered with the CFTC (Commodity Futures Trading
Commission) as well as the NFA (National Futures Association). The NFA
and the CFTC are the regulatory bodies governing Forex trading in the
US. Each country has its own agencies who govern Forex trading, so look
for the equivalent registrations in your country if you are outside of
the US. Look into any complaints which have been filed with the NFA
against the broker you're examining; you should try to find a brokerage
who has as few complaints as possible (preferably none).
The next
step is to look at the platform the broker uses - is their software
reliable? If you can't connect when you want to trade, this is a serious
problem and can cost you money. If the broker's platform isn't
reliable, then keep looking. You can get some advice from looking at
Forex trading forums to see what other investors are saying. However,
read several different forums and take what you read with a grain of
salt - some of these forum users may have their own interests in mind
when appraising a certain broker or platform. Some unscrupulous
brokerages will even post positive comments about themselves on these
forums, so as always, caveat emptor.
2. Services
Forex
markets are open around the clock from 5PM Sunday to 5PM Friday (EST).
Make sure that the trading platform used by your broker is up and
running through the entire trading week and that 24 hour support is
available as well.
You'll also want to make sure that your broker
deals in at least the seven most important currencies. These are the US
Dollar (USD), the Australian Dollar (AUD), the Canadian Dollar (CAD),
the UK Pound (GBP), the Euro (EUR), the Swiss Franc (CHF) and the
Japanese Yen (JPY). Very few brokerages do not deal in at least these
seven, but you should always check.
Your Forex broker should
provide market analysis, charts and trades which can be executed at the
price you see displayed in real time.
3. Costs
Unlike stock
brokers, Forex brokers make their income in the spread (the difference
between the purchase and sale prices) rather than a commission based on
the total amount of the exchange. The spread is expressed in Pips (Point
in Percentage); a pip is .0001% of the spread. Your broker will receive
anywhere from under 1 pip to around 3, depending on the currencies
traded and the broker's policies.
The spread is also where Forex
traders make their profits. The spread on the pairs you plan to make the
bulk of your trades in are of course the ones you'll want to watch the
most closely.
Look for a broker who will let you begin with a very
small investment (preferably $250 or less). It's best to start small
with any investment and Forex is no exception - the potential for
profits is great, but so is the potential for loss.
4. Margins
Every
brokerage has different requirements for margin trading. The lower the
margin, the greater the leverage needed. The higher the leverage used,
the greater the profit (or loss) will be on a trade. Low margins can be
both a blessing and a curse, so read up on margin trading and find out
what your broker's policies are.
5. Lot size
Lots can vary
in size depending on the brokerage. A standard lot is 100,000 units of a
given currency. There are also mini lots (10,000) and micro lots
(1,000). There are even fractional lots available from some brokers;
these let you decide on the size of lots you want to trade in.
These
five items are the most important things to look at when choosing a
Forex broker- but there are other things you'll want to consider such as
rollover charges, interest paid on margin accounts and more. Forex
trading can be complex, so it pays to do some research and choose your
brokerage very carefully.
The author, Colon McRae, publishes articles based on his trading knowledge and years of trading the markets at http://www.trading-home-business.com
His Trading-Home-Business.com site is the single, best resource for
achieving financial freedom by starting a trading Forex business.
Stop waiting and start your journey to financial independence now by getting your free introductory Forex e-course today.
Stop waiting and start your journey to financial independence now by getting your free introductory Forex e-course today.
