7 steps to choosing a broker for forex trading

If you’ve been thinking about getting started trading in forex, but have been hesitating to get started, there’s really no reason to delay any further. Fundamentally, there is no real difference between trading on the forex market than there is on any equity market. But there are a few things you’ll want to be sure to consider. Most importantly, you’ll want to choose a qualified broker. As with any investment decision, you want to make sure the people working on your side are the best able to put your money to work. Here are some specific things to look for – and avoid.

  1. Your broker should be able to demonstrate a track record of “low spreads” – a minimal difference in the price at which they purchase and sell a currency at any given moment in time. The “spread” is how forex brokers make their money – it’s roughly equivalent to a commission on a trade – so the lower the spread, the more you’re able to make in your dealings with this individual broker.
  2. Your broker should be able to provide excellent analysis that is clear and easy for you to understand. The importance of analysis in forex trading cannot be overstated. This is an incredibly complex market that changes very quickly. It’s crucially important that the broker you bring onto your team have a savvy understanding of the market’s whims and idiosyncracies.
  3. Your broker should be affiliated with a reputable institution. Most forex brokers work with large banks or lending institutions, simply because of the amount of capital required for the business. Make sure yours is working for a name you can trust, and that they are registered with the Futures commission Merchant and regulated by the Commodities Futures Trading Commission. Chances that you’ll have to rely on this backup are slim, but like they say – you can tell a lot about a person by taking a look at who their friends and allies are.
  4. Your broker should offer a wider range of leverage options. This is critical because in forex trading, you’re usually trading on values that equal a fraction of a cent. When you don’t have much capital to put on the line, it will be important that your broker is able to lend you the capital. When you have a lot, you want the terms to reflect that and offer greater returns. This is definitely a case in which one size does not fit all.
  5. Your broker also should offer a variety of account types. Two is the minimum here. You’re looking for at least a mini account that has a lower minimum and a higher amount of leverage. A standard account will have a much higher minimum but lower leverage. Ideally, your broker also will offer a premium account which will require significant capital but offer significant returns.
  6. Your broker should not snipe or hunt. By this, we mean your broker should not engage in the practice of prematurely buying or selling or engaging in any other unethical practice. Do your homework to make sure the broker you choose has a good reputation in the field.
  7. In addition to all of the above, your broker should feel like a good fit. He or she should be available to answer your questions, should be respectful of your level of expertise and interest and always should remember that you, as the client, always have the final say when it comes to strategy. You’re hiring and expert, but you’re the boss in this transaction. Good luck with your search and happy trading!

 

 

Categories: Tutorials

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