How to Go About Choosing a Forex Broker

Getting involved in Forex trading gives you access to one of the most dynamic and fast-moving markets in the world. Before you can participate in this market, you must open an account with a Forex broker. When it comes to choosing a broker, you literally have hundreds of options to evaluate. How can you be sure you're choosing the right broker to trust your money to? Here are a few things to look for when selecting a broker to work with.

Broker Regulation

Most legitimate Forex brokers are regulated by some type of regulating agency. A central regulating agency for all the brokers in the world is not available since they are situated in different regions. For example, most brokers in the United States fall under the jurisdiction of the National Futures Association and Commodity Futures Trading Commission or CFTC.

When you want to check out a broker, you can typically visit the website of the regulating agency that it falls under. For instance, in the United States, you can go to the NFA website and do research on brokers. You can find out which brokers have complaints against them and which brokers have a clean record.

If the broker that you are looking at is situated in some distant country and does not fall under any regulating agencies, you should feel uneasy about trusting it with your money.

Positive Broker Reviews

After checking out a broker with its regulating agency, you should also get online and look for some positive reviews. Reading reviews about Forex brokers can tell you a great deal because you are reading what existing customers have to say. If a broker's customers are generally unhappy with its service, you might be unhappy once you open an account. Try to read several reviews, as you will inevitably find positive and negative reviews about each broker. Get a feel for the general consensus on a broker before making a decision.

Broker Policies

Once you have narrowed down your list of brokers a bit, you can get more specific in your research. Go to the broker's website and read about some of the policies and options that it offers. Look at the deposit and withdrawal options for the broker. Make sure that it offers a convenient way to send and receive your money, such as PayPal or via credit card.

You should also find out what kind of leverage the broker offers. In Forex, the amount of leverage that you have is critical as it determines how much of your own money you will have to risk on each trade. Some brokers offer leverage as high as 500:1, while others may only offer 50:1. In the United States, the highest leverage you can get with a domestic broker is 50:1, due to NFA regulations.

The spreads that the broker offers are also important to evaluate. The spread is the difference between the bid and the ask price on a currency pair. This is how most Forex brokers are compensated and it cuts into the amount of money you make on each trade. Finding a broker with lower spreads gives you more opportunity to profit. You should also find out if the spreads are variable or if they are fixed. Some brokers guarantee a certain spread, regardless of market conditions.

Each broker will also have rules about the minimum amount of money you can deposit. If you are getting started with a minimal amount of capital, this is critical information. Some brokers have no minimum requirement, while others require $10,000 to open an account.

Type of Broker

When looking at brokers, you should also find out what type of broker you are dealing with. Some brokers use an electronic communications network or an ECN to fill orders while others are market makers. ECN brokers simply take your order and put it out into the market. Market makers take the opposite position of your trade and may not actually place your order into the market. Some traders prefer an ECN because it does not create a conflict of interest, but the price feeds and spreads can be more volatile.

Making the Choice

In the world of Forex, there is no perfect broker out there to search for. You will find pros and cons with each broker that you consider. The trick is to determine which factors are most important to you and then live with the shortcomings of the broker you choose. Regardless of your broker, you can be successful in the Forex market as long as you have a solid trading strategy and self-discipline.