Using A Trading Broker

Choosing a Forex Broker

The choosing of a good Forex broker can be just as complicated as Forex trading is itself. For that reason, investors should do their homework as diligently as they would for a trade.

A Forex broker should be registered. In the U.S., any reputable Forex broker would be registered as a Futures Commercial Merchant (FCM) with the CFTC (Commodities Futures Trading Commission). However, mearly finding one doesn't end the need for research, it's the bare minimum you should look for.

Since Forex trades are highly leveraged (in effect, the broker 'lends' an investor up to 99% of the money required to make a trade), the broker you select should be associated with a firm with deep pockets.

Forex accounts are not FDIC (Federal Deposit Insurance Corporation) insured, so you can not expect the U.S. government, or any other, to help you out. Large institutions, with ample capital to withstand downturns in the market, and rapid drains on their deposits, should clients withdraw en masse, are crucial to your financial peace of mind.

Beyond these basics, there are many others to look at.

Since the Forex markets trade 24 hours per day all around the world, you could trade after normal business hours in your country. Whether your broker resides in the same country or not, you will want one who will reply to your calls, or Emails. and quickly.

Forex trading has moved into the Internet age, but it is still very much a phone-based business. Getting a broker on the phone at any time of the day or night can mean the difference between profit and loss. Sometimes, a big profit or a big loss.

Since Forex brokers don't work off standard commissions the way stock or bond brokers do, you need to research the firm's spread. Forex trading is always done in currency pairs. A spread is the difference between the bid and ask price - what the broker pays to buy versus the amount they sell a currency for.

Any broker will offer a standard account to a qualified client. Typically you have to fill out an application form that states you have adequate capital and understand the risks involved in Forex trading. Standard accounts trade currency in standard lots of 100,000 units. You can't buy 100 euros for $150, you have to buy 100,000 euros.

However, that's a very large investment for the average trader, so the brokers offer leverage. Professional traders use leverage as well, of course. So, you put in, say 1% of the total, the broker puts up the rest. That has huge profit (or loss) potential, but it entails significant risk. So be aware of a broker's margin call policy.

You'll want a broker with software that provides you with the research and other trading tools you will need to be effective in Forex trading. Forex investing is much more complex and volatile than even stock or bond trading, which is already not simple when done well.

Be sure to use the trial accounts offered and make 'test' trades, in order to test out the software and research available. You need real-time prices - Forex moves very fast - and lots of technical and fundamental analysis information at your fingertips.

Take your time to research. After all, your decision will affect ALL your trades.

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