Choosing a Broker

Forex brokers, are almost a necessary evil if you are going to trade currency. There are those who are qualified to do this without outside help, but for the average trader, attempting to trade on the Forex market without a broker it is like trying to hunt a grizzly bear with a soup spoon. Your chances of success are very small, and there is a distinct possibility you will get hurt pretty badly. Of course choosing the wrong broker may return results similar to the ill fated bear hunt. That is why it is important that you choose a broker the right way.

First and foremost, be sure the broker you choose has the proper credentials. When looking at brokerage firms in the United States, immediately disqualify the ones that are not registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC). This is vital because this designation means that you are protected against fraud and any potential abusive trading practices. Covering your personal security before a trade has been made is a good way to wade slowly into the currency market.

Once you have eliminated the ones who do not have the proper credentials, and now have a short list of possibilities, the internet comes into play. Just don't go with the brokerage firm that has the best commercials, or gets the best "Law and Order" personality to help in its advertising, research your choices. A good idea is to send some emails to their customer service people. Gauge how long it takes them to get back to you. This is, after all, a customer service driven profession. Test how well they service the customer.

Once you are satisfied with a firm's qualifications and customer service practices, its time to get down to the brass tacks. Trading speed is always an issue, so find out how fast it takes your potential broker to execute an order. Also, you will want to know how much slippage can be expected. This should be information that can be discovered in a phone call, or an email to customer service. You will want these answers not only for normal markets, but for fast moving ones as well.

Brokerage firms are obviously not charities. In other words, they are going to charge you fees for their service. Don't blindly walk into a situation without being aware of what the fees are. It will be to your advantage to find a brokerage firm with a small spread. This will directly affect your wallet. Of course that is only if you are comparing apples to apples. If a great, and well reputed brokerage firm has a higher spread than "Bob's House of Waffles and Forex Trading", go with the known entity.

As we all know, the trading industry lives and dies on margin accounts. Be sure you have a grasp of the broker's margin terms before you commit to an account with them. How the margins are calculated and the margin terms impact you as the trader. Have a conversation with the broker about these issues.

These are the big topics you have to cover when choosing a broker. Other, less critical, topics you will want to investigate include the software your potential brokerage firm uses, and whether or not a demo is available to you. Be sure you have read all the brokerage firms internal policies and go in with your eyes wide open.