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Learn Forex Trading > Introduction to Forex Trade > Choosing a Forex Broker

Choosing a Forex Broker

A Forex broker is a Forex provider that you sign up with, in order to trade the Forex market. There are many Forex brokers or providers, and unlike other types of trading, there is no one centralised market. Instead there are thousands of Forex brokers, or market makers as they’re also called, who set their own currency prices and spreads. But because the market is competitive, there’s usually not a large enough difference in prices and spreads between different brokers to practice arbitrage. But every Forex broker is slightly different, and you should check that the broker that you’re looking at will give you a good deal.

Forex Trading Platforms

Forex brokers will provide you with an online trading platform, either downloaded to your computer and requiring you to log in with them when you trade, or as a totally online interface. The best way to see if the platform is adequate is to run their demo account to see if you can do all of your trading tasks on their platform. You’ll be looking at the currency charts, applying your system rules and indicators to assess the currencies you’re looking at, placing orders of various types for the spot Forex market (market orders, stop orders and limit orders), and viewing your account details, including your leveraged float available for trading.

Most providers will provide Forex charts as a part of their online trading platforms. However the quality of the charting packages may vary, so check that you can do essential things such as drawing lines, writing notes, and plotting indicators. That is, whatever you need to do to trade the system, and this does vary from system to system. Many Forex charts will be able to do all this, but sometimes they are not. Some providers have up to 2-3 levels of charting available, but one level is free.

Whether you need to upgrade will depend on the indicators you need to draw for your system. So try their demo accounts out to be able to tell.

Is the Forex broker regulated?

When selecting a prospective Forex broker, find out with which regulatory agencies it is registered with. The Forex market is labeled as an “unregulated” market, and it basically is.

In the United States a broker should be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and a NFA member. The CFTC and NFA were made to protect the public against fraud, manipulation, and abusive trade practices.

You can verify Commodity Futures Trading Commission (CFTC) registration and NFA membership status of a particular broker and check their disciplinary history by phoning NFA at (800) 621-3570 or by checking the broker/firm information section (BASIC) of NFA's Web site at www.nfa.futures.org/basicnet/.

Among the registered firms, look for those with clean regulatory records and solid financials. Stay away from non-regulated firms!

The NFA is stepping up their efforts in educating investors about retail Forex trading. They’ve created a brochure fit for a Pulitzer Prize called, "Trading in the Retail Off-Exchange Foreign Currency Market”. The NFA recommends you read it before taking the Forex plunge.


They’ve also developed a Forex Online Learning Program, an interactive self-directed program explaining how retail Forex contracts are traded, the risks inherent in Forex trading and steps individuals should take before opening a Forex account. Both the brochure and the online learning program are available at no charge to the public.

Customer Service

Forex is a 24-hour market, so 24-hour support is a must! Can you contact the firm by phone, email, chat, etc.? Do the reps seem knowledgeable? The quality of support can vary drastically from broker to broker, so be sure to check them out before opening an account.

Here’s a good tip: choose several online brokers and contact their help desks. Seeing how quickly they respond to your questions can be key in gauging how they will respond to your needs. If you don't get a speedy reply and a satisfactory answer to your question, you certainly wouldn't want to trust them with your business. Just be aware that as in other types of businesses, pre-sales service might be better than post-sales service.

Online Trading Platform

Most, if not all, Forex brokers allow you to trade over the Internet relatively easy. So trading software is very important. Get a feel for the options that are available by trying out a demo account at a few online brokers.

Closely examine the broker’s screen layout. It should include:

* the ability to view real-time currency exchange rate quotes,

* an account summary showing your current account balance with realized and unrealized profit and loss, margin available, and any margin locked in open positions.

Most trading platforms are either Web based (in Java), or a client-based program you can install on your computer, and which version you choose is your personal preference:

* Web based software is hosted on your broker’s web site. You won’t have to install any software on your own computer, and you’ll be able to log in from any computer that has an Internet connection.

* A client-based software program, or one that you download and install, will only allow you to trade on your own computer (unless you install the program on every computer you use).

Usually, the "download and install" program runs faster, but most programs are operating system specific. For example, most brokers only offer their trading platform application to run on Microsoft Windows. If heaven forbid you are a Mac user (!), you won’t be able to install the application and will have to use your broker’s Web based or Java-based trading platform. These two (the Web or Java-based) will run on any computer since they run through your internet browser.

Java-based software programs are preferred by most brokers, who think they are more safe and reliable. Java-based software tends to be less vulnerable to attack from viruses and hackers during transmissions than "download and install" software.

But always be sure to open a demo account and test out the broker's platform before opening a real account!

Don’t forget your high speed Internet connection

The Forex market is a fast moving market and you will need up-to-the second information to make informed trading decisions. Make sure you have a high speed Internet connection. If you don’t, you might as well not even bother trading. Dial-up will absolutely not work for Forex! If you plan to trade online you will need a modern computer and high speed Internet connection, and we can’t stress this enough!

Broker Policies

Before selecting an online Forex broker, you should closely examine their features and policies. These include:

* Available Currency Pairs
You should confirm that the prospective broker offers, at minimum, the seven major currencies (AUD, CAD, CHF, EUR, GBP, JPY, and USD).

* Transaction Costs
Transaction costs are calculated in pips. The lower the number of pips required per trade by the broker, the greater the profit that the trader makes. Comparing pip spreads of half dozen brokers will reveal different transaction costs. For example, the bid/ask spread for EUR/USD is usually 3 pips, but if you can find 2 pips, that’s even better.

* Margin Requirement
The lower the margin requirement (meaning the higher the leverage), the greater the potential for higher profits and losses. Margin percentages vary from .25% and up. Low margin requirements are great when your trades are good, but not so great when you are wrong. Be realistic about margins and remember that they swing both ways.

* Minimum Trading Size Requirement
The size of one lot may differ from broker to broker, spanning 1,000, 10,000, and 100,000 units. A lot consisting of 100,000 units is called a “standard” lot. A lot consisting of 10,000 units is called a “mini” lot. A lot consisting of 1,000 units is called a “micro” lot. Some brokers even offer fractional unit sizes (called odd lots) which allow you create your own unit size.

* Rollover Charges
Rollover charges are determined by the difference between the interest rate of the country of the base currency and the interest rates of the other country. The greater the interest rate differential between the two currencies in the currency pair, the greater the rollover charge will be. For example, when trading GBP/USD, if the British pound has the greater interest differential with the U.S. dollar, then the rollover charge for holding British pound positions would be the most expensive. On the other hand, if the Swiss Franc were to have the smallest interest differential to the U.S. dollar, then overnight charges for USD/CHF would be the least expensive of the currency pairs.

* Margin Account Interest Rate
Most brokers pay interest on a trader’s margin account. The interest rates normally fluctuate with the prevailing national rates. If you decide to take an extended break from trading, the money in your margin account will be accruing interest. Keep in mind that most brokers DO NOT allow you to accrue interest unless your margin requirement is at least 2% (50:1).

* Trading Hours
Nearly all brokers align their hours of operation to coincide with the hours of operation of the global Forex market: 5:00 pm EST Sunday through 4:00 pm EST Friday.


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