How to Choose a Forex Broker
Before you can start trading Forex you have to start an account with a Forex broker. A broker is a company or an individual that buys or sells orders on behalf of a trader according to the trader's decisions. Brokers charge a commission or a set fee for their services. It is very important to select a good broker whose features will meet your trading needs and expectations. There are some most important features you have to check prior to choosing a broker to be sure that your money is managed properly and that you have full control on your orders.
Regulation
The broker of your choice should be registered with regulating authorities. Those based in United States should be recorded as Futures Commission Merchants (FCM) with Commodity Futures Trading Commission (CFTC) and be the National Futures Association (NFA) members. For Forex brokers based in the United Kingdom you should check the Financial Service Authority (FSA).
These organizations work to protect traders against fraud, manipulation, and abusive trade practices. You should avoid unregistered firms but sometimes you also have to be careful with registered ones. Before you trust them you should check their regulatory records and financial basis. You can easily verify registered firms at Background Affiliation Status Information Center
Customer Service
A good broker must provide 24-hour customer service. It is crucial that you can contact your broker any time via chat, email or phone. You should remember that your profit depends on the speed of your broker reaction to your orders. Your broker should also offer knowledgeable consultants who speak English or your mother tongue. To test brokers help desks you can contact them and see how quickly they respond to your question. They will probably be as quick or as slow when responding to your orders. You just have to be aware that the service might be better before you open an account than afterwards.
Broker's policies
You should choose a broker that offers you the most suitable policies. Please refer to the list below to get familiar with the most important aspects you should check before starting an account with a new broker:
- Currencies - a broker should offer at least seven key currencies: AUD (Australian dollar), CAD (Canadian dollar), CHF (Swiss frank), EUR (Euro), GBP (British Pound), JPY (Japanese Yen) and USD (US Dollar).
- Transaction costs - the less pips required per trade by Forex broker the better because it means bigger profit for the trader
- Leverage - the leverage can't be too big. Bigger leverage means bigger profit but also greater loss, which is more probable when trading currencies.
- Minimum trading size – what size of lot does the broker accept
- Rollover charges – what are the charges for the same interest rate differential
- Margin account interest rate – it usually depends on your national interest rate
- Trading – your broker should allow access to best methods of analysis and let you trade on charts
Forex Trading platform
Most Forex brokers allow you to trade currencies via Internet very easily by using trading platforms. The most important part of every trading platform is the ordering system that allows you to react on Forex market quick enough to make a profit. The best way to learn about broker's platform is to start a Forex demo account.
A good broker's screen layout should include real-time currency exchange rate and your account details (current balance, realized and unrealized profit and loss, margin locked and margin available). You can access broker's trading platforms in two ways: by using a client-based software that you download and install on your computer or by using a Web based (usually in Java) software hosted on the broker's web site. Client- based software usually runs faster but when using web based software you will be able to log in from any computer connected to Internet and better protected from viruses and hackers. Most software that you install on your computer work in Windows environment so you have to check it if you are a Mac or Linux user.
Finding the right Forex broker
Some brokers offer additional services (eg. Email alerts or phone alerts) that might be very useful but they can also be useless for you but cost you a lot. You have to check if you can choose certain services and how much will you be charged for them.
In Forex finding the right broker is the critical part. Even if you chose a Forex broker that seems to be the most suitable for you, you should never start trading real money before you test the broker with your demo account. It is a good idea to check more than one and compare their demo accounts. If the demo account fails there is no point in risking real money with an unprofessional broker.