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Tuesday, November 5, 2013

How to Choose the Right Forex Broker

If you are just entering the Forex market, it can be a difficult task to choose the right Forex broker. There are so many choices out there, and it is often tough to differentiate from one broker to another. However, it is vital that you make the right choice, for it could have a huge impact on the returns you see in the next few years. Here is a three step guide that should help you make the correct decision regarding your next Forex broker

Step 1 : Research 

When you search for a list of five to ten brokers you think might be appropriate, it is time to narrow the list down into only a few suitable candidates. In order to do that, you must ask the following six questions about your broker: 

A. Is the broker you are considering registered with the appropriate regulating authorities? For example, they should have a NFA and CFTC registration in the United States. If they are based in the UK, they should have a FSA registration. If these registrations are missing, your broker is unlikely to be reliable.

How to Choose the Right Forex Broker

B. Is your broker Dealing Desk or Non-Dealing Desk? Do they offer fixed or non-fixed spread options? How wide are these spreads? Typically, large/variable spreads will cut into your profits, and will see your returns diminish over time. 

C. Ask how much leverage your broker will give you. If the answer is less leverage, then that is the broker for you. Brokers that wish for you to put in small amounts of money, while leveraging the rest, are too risky for risk time investors.  

D. Ensure that your broker has micro account options, and the option for a trial account that does not involve real money. This will give you an idea of the type of earnings you can get, and it will give you time to get used to the Forex market

E. Is daily rollover interest debited or credited? This is an important question for those traders that are looking to hold their positions overnight. 

F. Premium services should be offered by your broker. Charting, market commentary, news feeds, and live information is a must if you are going to be a successful Forex trader. 

Step 2: Compare 

The above questions should have gotten rid of at least half of your list, leaving you with three to five broker options. In this situation, you may want to make a comparison chart of the companies left. Look at their foundation date, how many clients they have, what their net capital is, and the account flexibility they offer. These stats will help you eliminate at least one or two brokers. 

Step 3: Demo Account 

When you are down to two or three brokers, it is a good idea to open a demo account with each company. This will give you a chance to see "live trading", and demo the features offered by each broker. After a demo period of two weeks, or a month, you can make a final decision about which broker you want to go with. 

Do not hesitate to take your time when you are deciding which Forex broker to go with. This is a decision that will have a huge impact on your trading future in the Forex market, and it is not something you want to rush through.

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