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How to Choose a Forex Broker That Won't Suck You Dry

May 24, 2008
In order to successfully trade on the foreign exchange market, you'll have to find a broker. This is someone who helps you execute trades in exchange for a commission on every trade. However, there are a lot of brokers out there who want your business. That means that it can be hard to figure out which one's right for you. Here are a few things you might want to look for.

Transaction cost - Brokers in a Forex market are paid via a bid/ask spread. There ought to be no charges to trade, or hidden fees. There might still be extra charges asked by a good broker for some optional services or access to particular reports. A smaller spread is obviously better. You'll find that pip spreads vary by broker, and by currency pair. Shop around to find the most competitive rate.

Available currency pairs - Every broker should list at least the big seven currencies (AUD, CAD, CHF, EUR, GBP, JPY, and USD), but you should be sure that your broker is able to handle others. That way, if you're planning to trade in Danish krones or New Zealand dollars, you can.

Immediate order execution - The prices of currencies are constantly moving up and down. That means that any kind of delay in the execution of orders might cause losses or cut into profits. While it's possible that a delay will help, you can't rely on that. Find a broker who's able to execute your trade at the price on your screen, instantly. While occasional delays are understandable, you should find a new broker if it seems to be happening a lot.

Free tools - To help you analyze the prices of currencies, spot trends, plan exit and entry points, and much more, you'll need access to technical analysis and charting tools. Most good brokers have a basic service that offers these free of charge. For more tools, however, you may need to pay.

Minimum account balance - Small investors require brokers who don't require a large balance to open accounts. Most brokers today are willing to allow you to open a mini-account containing as little as three hundred dollars.

Margin requirement - Lower margin requirements five you more leverage. If brokers let you use a hundred to one leverage, that means you're able to trade a hundred thousand dollars in currency for only a thousand dollars. You can use this margin to acquire enormous profits, but don't do it too much, or you could lose a lot.

Excellent customer service - Many traders overlook customer service when they pick a broker. Don't do this, or you'll regret it in the long run when you need help. Any good broker will be able to respond fast to any question. They ought to have knowledgeable people available to answer your questions on the phone or via email, twenty-four hours a day.

User friendly trading platform - Some brokers will require you to download their trading program to your computer if you'd like to trade. Others allow trades to be directly made via the Internet. Pick out a few prospective brokers and sign up for a demo account. That way, you can use pretend money to trade while testing out software packages and deciding which ones you like best.
About the Author
Ian Armstrong is an avid Forex enthusiast.

For further insights into choosing a reliable forex broker, see the list of industry-standard brokers and platforms at Forex Brokers & Trading Platforms
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