Sometimes the Forex market can seem a bit like the Wild West. The number of Forex brokers out there is almost unlimited, with each claiming to be the best in the market. Given the fact that forex trading is a high-risk, high leverage enterprise, the last thing you want is a broker who is not going to work in your best interest. Choosing the right broker to a large extent depends on your own trading requirements, but there are some basic things that you need to look at before making a decision.
It’s a sad fact, but some forex brokers operate at the edge of the law. For example, a broker may try to make money by betting against traders without actually executing trades on any exchange. This is known as a bucket shop, and it is a crime to operate one of these in many US states. To avoid this, find out how the broker is regulated and which country regulates them. Don’t assume that just because a brokerage has offices in the US that it is regulated by the NFA – many brokerages are multinational. Also, avoid any broker that claims to be “self-regulated” – all this means is that they are unregulated but they’re not honest enough to tell you.
Next, find out how easy it is to move your money in and out if you set up an account with the broker. There are a number of different ways that brokers can transfer money to you quickly, including wire transfers using a company such as Trans-Fast. Some will even send you a check free of charge, but the trade-off here is that it will typically take to a lot longer to actually get access to your funds. Also note that some charge very high fees for withdrawals, which may not be a problem if you are trading large amounts, but it will eat into your profits if you are a small trader.
You should also find out what currency pairs the broker allows you to trade, since some only have a narrow set of choices. If you only want to trade major currency pairs – such as US dollars and UK pounds – then that should not be a huge issue. However, keep in mind that major currency pairs are typically less volatile and therefore offer less profit and loss potential. If you do want to trade less common, more volatile pairs, then you should look for a broker that offers a larger range.
Finally, take a look at the broker’s minimum deposit requirement. While it may be tempting to start out with one that lets you trade with a $10 deposit, this may be a sign that they are not a reliable institution. Instead, look for one that has a higher requirement, such as $500, since these tend to be more stable institutions looking for committed investors. If you do want to learn to trade without taking any risk, it’s probably a better idea to use a free demo account – which most brokers offer.