How to Choose a Forex Broker
The more we live the more we find out that we are dependent on many things besides our wits. Smartness will only get us so far, but unless we make use of systems set up for our convenience we are apt to fail. This is so with the Forex market. The way how the market works means we have to work through a broker or a market maker to get our trades started and completed. You can find Forex brokers in every part of the world just as you will find currencies traded in almost every corner of the globe. However, you should consider a few points when you go out shopping for the right broker to help you with your trades.
Probably the most important thing of all is ensuring the Forex broker you use has the correct qualifications. Therefore, choose a broker registered with the Commodity Futures Trading Commission (CFTC) as a Futures Commission Merchant (FCM). This means that you have legal protection against any abusive trading practices and scams that may arise.
• Brokers should be registered under FCM or Future Commission Merchant which is involved in the acceptance or solicitation of orders and future delivery through contract markets.
2. Is the broker regulated?
This means that when you sign up to use their services you will have protection and insurance against any internal fraud. Also, your funds will remain separate from the broker’s operating funds.
3. What business model does the broker use?
Some brokers are market makers while others are ECN brokers, providing a dealing desks for many traders.
4. Look at the types of spreads they offer
Brokers do not make a commission on your trade, instead they take the spread as compensation. Your broker may also offer fixed or variable spreads, and they can be different for large accounts and mini-accounts.
• Spread is the difference between the selling price and buying price of a currency. Spreads are calculated in pips. Brokers make money through spreads so in simple terms, the greater the spread, the greater the spread a broker can gain. When all else is equal go for the broker who has low spreads.
Can they provide you with details of just what slippage they would expect to occur during normal and fast moving markets?
6. Margin requirements
What is their margin requirement? That is, what percentage of the investment in your trades do they expect you to pay to open a trade. You also want to know about their margin calls, and the time you need to respond to such calls.
7. What is their Rollover Policy?
Do they have any minimum margin requirements which they use to earn interest on any overnight positions? Plus, do they have any other requirements or conditions about you earning interest on any rollovers.
Once you have done your research and have selected one or more Forex brokers, then it is time to set up your trading account. When your funds clear you can begin trading. Remember to read carefully the trading instructions to know how the broker can help you manage your trades.
If you overlook some relevant details, you can lose money on your first trade. So take the time to read the details and ask the brokers or their support staff any questions you may have before you open your first trade.
• Leverage is the sum of money a broker is willing to lend you for trading. It is expressed as ratio between your actual capital and the sum of capital available. For example, the ratio 200:2 means that a broker will lend you $200 for every $2 actual capital. Leverage is important in Forex trading and in any trading.
• Forex brokers offer various trading packages or as often called in the trading market, trading “platforms”. Trading platforms can be composed of technical analysis, real time news, technical charts, economic calendars and data for trading systems. Request a free trial of these platforms to have a better grasp of their trading processes.
• The types of accounts each broker carry are also important factors in choosing a reliable Forex broker. They can have mini, standard or premium accounts that require different amount of capital.
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