By: Terry Allen
Forex does not function using a centralized market in the same way as other markets. Consequently, in order for you to trade Forex you will need to employ the services of one of the numerous Forex brokers that exist that will enable you to trade this market.
It is highly recommended for you to create your own Forex brokers guide so that you will keep in mind what offerings and preferences you want in a Forex broker. It is important to appreciate that the Forex market is very competitive and that you need to perform thorough research in order to identify a broker who is most compatible to your objectives and resources. In fact, if you aren’t entirely satisfied with your broker at any point, it’s worth revisiting your Forex brokers guide and trying out a new broker that can better meet your needs.
Here are some questions that you can include in your Forex brokers guide that you should gain answers to during your quest.
1. How much will it cost you to open a Forex account?
2. What size leverage facility do they offer? You are well-advised not to enroll with brokers providing very large leverage facilities because they could cause you to easily overtrade. You may be interested to know that all USA brokers can now only provide a maximum leverage of 50:1 following recently introduced CFTC Rules and Regulations
3. What spreads do they charge? You can anticipate that most top Forex brokers will display a 2 to 3 pip spread for the EUR/USD currency pair.
4. What methods will you be able to use to deposit and withdraw money from your Forex account? For instance, will you be able to use credit cards and bank wires?
5. Will your new broker be able to provide you with the option of mini and micro accounts so that you can trade using smaller lot sizes?
Your Forex brokers guide should also help you evaluate the trustworthiness of a specific broker, which may be directly related to its size. Larger Forex brokers such as Dukascopy, for example, tend to have direct affiliations with some of the world’s major banks, a relationship which can speak volumes of the broker’s trustworthiness. Smaller brokers, on the other hand, such as Sunbird FX, may not have close relationships with banks, but will focus instead on fostering their relationships with their traders, which can work to your advantage. Carefully consider what your needs are so that you can determine what size brokerage will be ideal for you.
Another critical thing to list in your personal Forex brokers guide is a confirmation that broker of your choice is a registered FCM (futures commission merchant) and registered with the US Commodity Futures Trading Commission (CFTC) or with the proper regulatory body in the country that the broker is based in. Ensuring that your Forex broker is properly regulated is critical so that you can trade with the knowledge that your funds are protected.
Adjusted Net Capital
Finally, it’s important to make sure that your Forex brokers guidelines includes review of the adjusted net capital of any potential broker. For your own security, favour brokers that present an adjusted net capital in excess of $25 million, as these brokers will have the stability and size that you require in order to be able to trade Forex with confidence.