Six Things to Consider When Searching for a Good Forex Broker

By: F. Aldo

Not all forex brokers are created the same. Each one will have tools and services different from the other. You might find a broker that offers great resources and information to analyze and spot trends in currency trading but can come up short on the software platform side. Therefore it is important to do some research at the beginning so that the relationship you foster with your broker can be a lasting and profitable one.

To help you along here are some tips on finding a good broker:

  1. Account types - The amount of capital you are willing to invest will dictate what type of account you will open with a brokerage. Typically, most brokerage firms will offer a "mini" and a "standard" account.

    As the term implies, a mini account can be opened for as little as $200. This is suitable for the novice looking to gain experience in trading. However there are instances when trading options such as leveraging can be limited in a mini account. A standard account, on the other hand, offers more options over the mini account but the minimum deposit is also much greater (around $1,000.00).


  2. Platform - The platform is basically the program that you will use to get such information like live quotes, charts, your exposure, your profit and loss, the margin required, all your open positions and other useful information.

    A good brokerage will very likely be using sophisticated technology in their platforms so be sure to find out if it is user-friendly at all. All the buying and selling should be easily done in as little as one click. Some platforms also gives you access to daily analyses in forex, news reports and forex signals including support and resistance levels.


  3. Leverage - Leveraged financing is a feature common in forex trading. It basically means you can use credit in order to maximize your returns. In simpler terms, what you do is you "borrow" your broker's funds temporarily to make larger trades and if all goes well, will produce larger profits.

    An opportunity therefore is created to control a $400,000 transaction for as little as a $1,000 actual investment. In this example, the leverage level is x400. An investor should be aware though that if the market turns sour, there is a risk of losing a substantial sum of money, depending on the amount of leverage taken. So it is a good idea to learn more about leveraging before exposing your investment in the open market.


  4. Spread - Stock brokers make their money in commissions, forex brokers make theirs through the spread. A spread is the difference between buy and sell--the price at which a currency can be bought and the price at which they can be sold at any given time. To the investor, a smaller spread logically means that there is a higher profit potential.

    There are two types of spread--fixed and variable. Fixed spreads remain the same throughout the day. Variable spreads change according to market conditions. A busy market must react considerably in your favor before you can turn a profit.

    Spread also varies from account types. A mini account typically charges a higher spread than a standard account. A potential trader should therefore know the spread of each broker before settling at a decision to sign up.


  5. Technical support - Obviously, support should be considered such as when the software becomes faulty or when questions arise regarding certain transactions. Quick acting support reflects positively on a broker and you can even test this by contacting them with pre-sale questions.


  6. Demo account - Before putting any weight on any of the items mentioned above, a beginner should always look for a broker that offers a demo or trial account. Not all brokers offer demo accounts. A demo account will allow you to trade in "play" money so that any losses you incur do not count against your investment. Needless to say, you do not make any money either if you turn a profit in your demo account. It is there only to get a beginner acclimated to the different forex conditions.


While this may be some of the most important points to consider when looking for a forex broker, there are some "little things" that may crop up while doing your search such as unique promotions or special offers. However there is enough information in the foregoing to provide you with a basis for judging whether some offers are above board or not. There is nothing to stop you from signing up with different brokers and to take advantage of whatever special offers they may have on the table. Exercising some due diligence at the start will prevent a lot of heartache later on.

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