Choosing a Forex Broker

Choosing a Forex Broker

Choosing a forex broker can be daunting task. They all seem to sound so good when you read their sales pages, but how do you know which ones are worth your money?

Initial Deposit

You should look for a forex broker that has a low initial deposit. It is not a matter of the amount you should start trading with, but if a broker wants many thousands just for you to open an account, it is questionable. The ideal initial deposit requirements should be $300 to $500 or less.

Regulation

The forex market is an unregulated market meaning there is no central exchange. However, forex brokers themselves are regulated. 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). You can verify a broker’s status with the NFA on the NFA web site. If you do not find the broker you are interested in listed with the NFA, look for another broker that is listed and has a clean record.

Customer Service

Forex trading hours vary depending on what currencies you are most interested in trading. With that in mind, it is important to find a broker with 24 hour customer service. The forex markets can be wild at times. If you had a question about order execution or a closed order, you should be able to get your question answered no matter what time it is.

A good test of a forex broker’s customer service ability is to contact the support desk and ask some questions by phone. Keep notes on how responsive they are to your questions and what attitude they have about answering them. Remember, you are trusting these people with your money. You need to feel absolutely comfortable that all your needs will be addressed.

Currency Pairs

Find a broker that offers the currency pairs that you are most interested in trading, or at least a good variety to choose from. Currency pairs tend to have different breathing patterns and you want to have a good menu of selections.

Software

A professional and easy to use trading platform is a must. You would not want to be struggling with the features of the trading platform while trying to make a trade. Any reputable forex broker will offer the ability to trade on a demo account. The demo software operates the same way as the live trading platform. This will give you a chance to fully test out the trading platform without the pressure of using real money.

Reputation

Always check the reputation of a forex broker. One way is to do a google search with the name of the broker plus the word “complaints”. Check around and get opinions from traders on forex message boards. Spend a fair amount of time doing your research. This is an important relationship. You will want to be absolutely comfortable with the broker that you decide on.

The important thing to remember is that you will have to do some homework here. It is imperative that you are not lazy about it. Don’t be sucked in by a glossy sales page with extraordinary claims. Investigate! Use a demo account. Take some time to shop around. In the end, you will be happy that you did.

The Benefits of Forex Trading

There are five things give trading the forex market some unique advantages.

1. 24 Hour Market
Since the forex market is worldwide, trading is continuous as long as there is a market open somewhere in the world. Trading starts when the markets open in Australia on Sunday evening, and ends after markets close in New York on Friday.

2. High Liquidity
Liquidity is the ability of an asset to be converted into cash quickly and without any price discount. In forex this means we can move large amounts of money into and out of foreign currency with minimal price movement.

3. Low Transaction Cost
In forex, typically the cost for a transaction is built into the price. It is called the spread. The spread is the difference between the buying and selling price.

4. Leverage
Forex Brokers allow traders to trade the market using leverage. Leverage is the ability to trade more money on the market than what is actually in the trader's account. If you were to trade at 50:1 leverage, you could trade $50 on the market for every $1 that was in your account. This means you could control a trade of $50,000 using only $1000 of capital.

5. Profit Potential from Rising and Falling Prices
The forex market has no restrictions for directional trading. This means, if you think a currency pair is going to increase in value; you can buy it, or go long. Similarly, if you think it could decrease in value you can sell it, or go short.

What is Forex Trading?

Forex Trading is trading currencies from different countries against each other. Forex is acronym of Foreign Exchange.

For example, in Europe the currency in circulation is called the Euro (EUR) and in the United States the currency in circulation is called the US Dollar (USD). An example of a forex trade is to buy the Euro while simultaneously selling US Dollar. This is called going long on the EUR/USD.
How Does Forex Trading Work?

Forex trading is typically done through a broker or market maker. As a forex trader you can choose a currency pair that you expect to change in value and place a trade accordingly. For example, if you had purchased 1,000 Euros in January of 2005, it would have cost you around $1,200 USD. Throughout 2005 the Euro’s value vs. the U.S. Dollar’s value increased. At the end of the year 1,000 Euros was worth $1,300 U.S. Dollars. If you had chosen to end your trade at that point, you would have a $100 gain.

Forex trades can be placed through a broker or market maker. Orders can be placed with just a few clicks and the broker then passes the order along to a partner in the Interbank Market to fill your position. When you close your trade, the broker closes the position on the Interbank Market and credits your account with the loss or gain. This can all happen literally within a few seconds.