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Getting Started With FOREX - Selecting A Broker

Aug 17, 2007
You have decided that you are ready to start investing in the FOREX market. You have developed the proper mind set and even decided on the type of account that will meet your needs. So what is the next step? You need a broker; your broker is the person that will handle the actual transactions you wish to make when you trade.

Just a few minutes of research on the Internet will show you that there are a huge number of FOREX brokers out there looking for your business. Everything from large financial institutions that mainly concentrate on large managed accounts to small private companies that dedicates themselves to private investors working with mini-accounts. So how can you possibly know which broker is right for you? Which of the hundreds of available brokers will be the best one to help you realize your investing goals.

The first thing you need to do is to consider the type of account you are wanting to open and narrow your list to brokers that handle those accounts. Most people reading this are probably going to be looking at a mini or standard account. Large managed accounts are a whole different breed of animal than the investor directed accounts.

If you are interested in a managed account then your best bet is to go with a large financial institution that has a proven track record of successful investment strategies. Any brokerage that handles these types of account should be able to provide you with historical data on their trading record so you can judge their competence and success rate. Always remember though that past results can be an indicator of future results but they are not a guarantee.

When looking for a broker to open an investor directed account with there are many factors to consider. The most important criteria though are safety and reliability. Though fraudulent brokers are far less common than they were a few years ago there are still some out there. All brokers should have a relationship with a reputable financial institution and should be listed by Commodity Futures Trading Commission as a Futures Commission Merchant.

Once you are sure that you are looking at only legitimate brokers then fees and commissions would be a good factor to consider next. Most FOREX brokers do not charge any fees they make their profit from the spread. The spread should be clearly stated on their website and should also tell you if the spread is fixed or if it can vary under certain circumstances. Check to see if the spread is the same for all account types, some brokers charge higher spreads for mini-accounts.

Something else to consider is the trading software provided by the broker, most brokers will allow you to sign up for a demo account so you can test their software. Make sure that the software works well and is easy for you to use. It is very difficult to trade if you have trouble using the broker-supplied software.

Does the broker provide instant executions and what are their slippage policies? How much slippage can you expect under normal trading circumstance. Look into their margin policy and requirements. Are there different margin requirements based on the currency being traded? Make sure that they cover all the currencies that you will be interested in trading.
Selecting the right broker is vitally important. Time spent completely researching your options before you make a selection will definitely be time well spent.
About the Author
By Steve Welker
FOREX Trading Made Easy
Learn our FOREX day trading system completely free.
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