Choosing a Forex Broker
The forex trading business has changed tremendously since I made my first forex trade way back in the 1980’s. In those days the costs of data feeds and market news feeds were so expensive that except for big players trading from home or from a small business was prohibitive.
The cost of Reuters, Telerate, and other services could easily be several thousand dollars a month. There was also the problem of finding legitimate banks or counter parties for your trades that would accept smaller accounts. And by smaller I mean anything less then seven figures.
Even then many banks would accept a forex trading account only on an accommodation basis. Which meant that you had to have a sizable amount of other business and deposits at the bank in order to be accepted for forex trading.
There were forex dealers, mostly out of Asia, who catered to the smaller client but most of these were bucket shop operations and best to be avoided.
As you can tell the good old days were not so good for smaller forex traders. How things have changed in the past 25 years.
Now you can run a search online for “forex trading” or “forex trading system” or just “forex” and find a large number of firms eager to accept your account and forex trading business, even if it is small potatoes.
Your choice of a good forex broker or dealer is important to you. Take your time to research each firm of interest. The following are a few things to consider:
1.) Make sure that the firm is registered with the appropriate regulatory body in its country. In the US look for a firm to be registered as a Futures Commission Merchant and a member of the National Futures Association. In the UK make sure that the firm is regulated by the Financial Services Authority.
2.) Check out the forex trading platforms. You will find web based systems as well as software to download. Most firms will allow you to set up a free test account that will let you use the software before funding your account. Some of the software programs are so-so, some are excellent. Take the time to see what is good for your needs.
3.) Open an account with an established firm, one that is easy to check out. Again look for a firm that is regulated.
4.) Make sure that up to the second pricing is offered. The trading platform should make it very easy to make trades at current prices.
5.) look for a firm offering narrow spreads between bid and asked prices. With advances in trading activity regulated firms are now generally offering from one to three pip spreads.
6.) Look at the way accounts are funded and how withdrawal requests are handled.
7.) Make sure there is someone at the firm that you can talk to on occasion. At times the Internet may not be available to you due to a power failure, network problems, or computer failure. If you have open positions on when this occurs you will want to have a trading desk telephone number that instantly connects you with a real person. With proper stop loss positions in place the urgency of such a call will be considerably reduced.
8.) Closely examine the firms stop loss policy. Some firms will guarantee you a fill at exactly your stop loss price. This is a big plus in fast moving markets.
9.) Take the time to speak with a dealer or account representative at the firm. Getting to know the folks on the trading desk will serve you well as you move forward with a trading program.
10.) Carefully read the firm’s research reports and trading comments and if offered advice. The quality can vary significantly from firm to firm.
Like any investment you should complete your own research before jumping right in. Trading forex consistently at a profit requires trading skills and good judgement. When you trade with a firm that has the resources to help you develop as a successful trader your learning curve will be a lot more manageable and pleasant.
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