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Home » Banking » Foreign Exchange » Choosing a Forex Broker

Choosing a Forex Broker


Before trading Forex you need to set up an account with a Forex broker. So what exactly is a broker? In simplest terms, a broker is an individual or a company that buys and sells orders according to the trader's decisions. Brokers earn money by charging a commission or a fee for their services.

You may feel overwhelmed by the number of brokers who offer their services online. Deciding on a broker requires a little bit of research on your part, but the time spent will give you insight into the services that are available and fees charged by various brokers.

Is the Forex broker regulated?

When selecting a prospective Forex broker, find out with which regulatory agencies it is registered with. The Forex market is labeled as an ďunregulatedĒ market, and it basically is. Regulation is typically reactive, meaning only after youíve been bamboozled out of your entire savings will something be done.

In the United States a broker should be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and a NFA member. The CFTC and NFA were made to protect the public against fraud, manipulation, and abusive trade practices.

The NFA is stepping up their efforts in educating investors about retail forex trading. Theyíve created a brochure fit for a Pulitzer Prize called, "Trading in the Retail Off-Exchange Foreign Currency MarketĒ. The NFA recommends you read it before taking the forex plunge.

Theyíve also developed a Forex Online Learning Program, an interactive self-directed program explaining how retail forex contracts are traded, the risks inherent in forex trading and steps individuals should take before opening a forex account. Both the brochure and the online learning program are available at no charge to the public.

Customer Service

Forex is a 24-hour market, so 24-hour support is a must! Can you contact the firm by phone, email, chat, etc.? Do the reps seem knowledgeable? The quality of support can vary drastically from broker to broker, so be sure to check them out before opening an account.

Hereís a good tip: choose several online brokers and contact their help desks. Seeing how quickly they respond to your questions can be key in gauging how they will respond to your needs. If you don't get a speedy reply and a satisfactory answer to your question, you certainly wouldn't want to trust them with your business. Just be aware that as in other types of businesses, pre-sales service might be better than post-sales service.

Online Trading Platform

Most, if not all, Forex brokers allow you to trade over the Internet relatively easy. The backbone of any trading platform is their ordering system. So trading software is very important. Get a feel for the options that are available by trying out a demo account at a few online brokers.

Closely examine the brokerís screen layout. It should include:

* the ability to view real-time currency exchange rate quotes,
* an account summary showing your current account balance with realized and unrealized profit and loss, margin available, and any margin locked in open positions.

Most trading platforms are either Web based (in Java), or a client-based program you can install on your computer, and which version you choose is your personal preference:

* Web based software is hosted on your brokerís web site. You wonít have to install any software on your own computer, and youíll be able to log in from any computer that has an Internet connection.
* A client-based software program, or one that you download and install, will only allow you to trade on your own computer (unless you install the program on every computer you use).

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