How to Choose Your Forex Broker

Filed under Forex Trading

You work extremely hard for your money, and don’t want to give just anyone the responsibility of handling and managing it for you. As popular as Forex trading is, it’s very complicated, thus very important to choose the right Forex broker to handle the investment of your funds.

The key in finding the right broker is to do your homework and become very diligent when conducting your research. This added effort in the beginning stages of your career as a Forex investor will save you significant time and money in the future.

The Futures Commercial Merchant (FCM) registration should be boasted by any Forex broker you examine. This is the minimum requirement you should seek, as this title is given by the Commodities Futures Trading Commission (CFTC).

Forex trading requires your broker to lend you money to make a trade, sometimes up to 99% of the needed amount. Make sure your proposed broker is employed with a reputable firm that can afford these types of loans and absorb the costs in the case of a bad trade – you don’t want your broker to disappear because his or her firm went bankrupt!

The Federal Deposit Insurance Corporation, or FDIC, does not insure Forex accounts, thus you won’t be able to recoup any lost funds when the market goes down. Your chosen firm should have more than enough assets to withstand any declines in the market, resulting in many clients withdrawing funds and closing accounts.

First, you need to consider if you will want to dabble in foreign markets, which will require trades after normal business hours in your time zone. This could mean you seek out a broker in another country, or someone who does not hang his hat up at 5 p.m.

Forex trading is conducted mainly by phone, even though many investors try to save time and money by trading exclusively on the Internet. Commodities provide great potential for huge returns, but this also means you can quickly lose everything in these volatile transactions – so, make sure your broker is available at any time to execute any buy or sell action you please.

Although standard stock brokers work on commissions, this is not necessarily the case with all Forex brokers. Thus, you need to research your chosen firm’s ‘spreads’, or the difference between the bid and ask price. This amount is what your Forex broker charges for the transaction.

Some of these spreads are fixed for any buy or sell order, and this will allow you to know exactly what your trades will cost you. However, fixed spreads are typically larger than variable spreads, which depend on the type of transaction or amount of funds involved.

Also research minimum accounts required by your Forex broker candidates. Do they offer mini accounts? If so, this will require a much more comfortable level of funds from you in order to do business with them.

Researching the firm and Forex broker you are considering employing to handle your Forex accounts is well-deserved and a necessity to protect your future, so be diligent and ask as many questions as possible before making your decision!