The Forex market is very unique in many ways including its 24 hour schedule and its rapid growth. However, one characteristic really sets it apart from the rest of the world's financial markets. It is by far the largest market in the world with close to four trillion dollars traded daily.
As a result of its high trading volume and its easy access to anyone, the Forex market and more specifically the number of Forex brokers is growing faster than ever.
A large selection to choose from is always a good thing, however, the large number of available Forex brokers can make the choice that much harder for a new trader. The decision of which broker to choose is a crucial one and one that will strongly effect your trading future and its success or failure.
So in order to choose a broker wisely, here is a short list of characteristics you should look for.
-Regulation: The most important aspect to check before choosing a broker is how and if their firm are regulated. If the broker's firm is located in the U.S, it must be regulated by The National Futures Association (NFA). It should also be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC). This is a very simple verification. You can just check a broker's NFA membership status and any disciplinary actions by visiting the NFA official website.
-Professional Website: "Show me a company's website and I will tell you who they are". The way the site portrays the company can really give you a clear picture of who you are dealing with. Obviously, this is a subjective matter, but there are some very basic questions you can ask. Does it crash a lot? Is it easy to navigate? Is it professional looking? These are all questions you need to ask when learning about any company, but it becomes much more crucial when you are about to invest your money in the company at hand.
-Competitive Spreads: This is a very important aspect to examine before signing with a broker. What spread are they offering? Just to give a very basic explanation, currencies are traded in pairs. The difference between the selling and the buying price is called a spread. A good indicator is that the spread should be no larger than 5 pips for the major currencies. The Majors include: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD and USD/CAD.
-Customer Support: This is a more important characteristic in Forex than it is in other industries. In addition to the frustration caused by lack of customer support, this can lead to major losses in actual money. If for example, your broker does not respond to your calls or emails in a timely manner, when you request to open or close a position based on the market, it might take too long and result in losses on your end. Before signing up with a specific broker, test out their customer support by emailing, calling, or chatting with their online representative. If you do not get the response you expected, think twice before opening an account with that broker.
-Quick Response Time: This is connected to the customer support but it goes beyond. Even if the customer support is to your satisfaction, it is important to verify that when making a request to open or close a position, your request is fulfilled with a minimal delay. The most effective way to verify this is by opening a demo account with the broker, something you should do anyway to improve your trading skills. This is not a perfect method as very frequently, the speed of the demo account is in fact different than the real account, but it is the best way to check given the tools you are provided.
-Reasonable Leverage: Leverage in general is what gives the Forex market a strong appeal to retail traders. However, the risks of trading with high leverage are just as great as the perks. Most serious brokers offer leverage ratios starting at 100:1 and going all the way up to 400:1. The greater the leverage, the greater the risk for the broker. If a broker offers a leverage that seems too high to you, this might be a good indication of the future of that broker, or lack thereof.
-Stop Loss Protection: This is a feature that enables you to ensure that your losses do not exceed a certain amount. Most brokers offer this feature, but it is still important to verify with your broker before signing.
-Competitive Platform Technology: This is one of the most basic and essential verifications you need to make before choosing a broker. The trading platform is where it is all going to go down. If their platform is not easy to navigate and user-friendly, their customer support can be the best in the world, and you will still fail as a trader. Like any interface you use in your life, the platform should have an interface that enables you to fulfill your goals with a minimal number of steps.
To summarize, there are many things one must do before becoming a successful Forex trader, but one of the most important of all, if not the number one most crucial task, is finding a trustworthy professional broker. The above steps will assist you in doing just that.