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Choosing the Right Forex Broker

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If you've already made the decision to go ahead and starttrading forex, the first step you need to take is to choose theright forex broker. Currency brokers vary more than the U.S.Investment houses, so you really need to do your homework beforemaking a decision. This is very important because your broker isalmost like your business partner. They need to not only treatyou fairly, but also execute when called upon. Here are some ofthe most important aspects to consider when picking your broker: Low Spreads. Always look for a broker that offers lowspreads (which are measured in pips). The spread is thedifference between how much you can buy or sell a currency at aspecific point in time. It's very similar to the bid and askprices in the stock market. Since you don't pay a commission toa forex broker, they make their income through the spread. Youdon't get anything in return for paying the spread, so you'llsave money on each trade if you pick a broker with low spreads. Amount of Leverage Offered. Leverage is essential tomaking big money in forex. When you're making a profitabletrade, the amount of "increase" in what you're holding amountsto just fractions of a penny per unit. So if you're notinvesting tens or hundreds of thousands of dollars, your totalgain is minimal. To make a stock market comparison, assume thatyou buy $5,000 worth of a stock for $20. A few hours pass, andyou sell it for $20 1/8. Total gain? A barely noticeable $31.25.Now lets say you were able to borrow your brokers money, and buy$500,000 worth of the same stock. Your gain would now be $3,125,which is much more substantial. An equity broker would nevergive you that much margin, but you can find some forex brokerswho will offer as much as 100:1, which means that you can borrowup to 100 times the amount of your own capital invested.Obviously, this can be risky because you can lose money as well.Do your homework on how margin and margin calls work beforeusing it, but understand that it is the fastest way to big money. Reputation of the

Firm. All forex brokers should beregistered with the Futures Commission Merchant and theCommodity Futures Trading Commission. You should verify thatyour potential forex broker is in fact registered before givingthem any money. Also, because of the massive amount of capitalrequired in the foreign currency market, brokers are usuallyowned or operated by large banking institutions. Verify theirfinancial stability to ensure the safety of your investments. Account Types Available. Small investors should look forbrokers that offer mini accounts. A mini account usually offersa high amount of leverage (otherwise it would take decades ofsuccessful trading to grow $300 into anything significant).Every broker should have standard accounts which need $2000 tostart the account with and offers more leverage options. Thethird type of account is a premium account, which will offeraccess to more powerful tools, services, and research. Theamount of capital needed for a premium account will vary basedon institution. Quality of Tools and Research. Just as in online stocktrading accounts, the quality and availability of tools andresearch will vary greatly between brokers. Most will have realtime charts, news, & data, along with technical analysis tools.Some will have expert analysts writing articles and reports. Youcan look these analysts up on Google to see how credible theyare. Also look for technical trading tools, economic indicators,and good customer support. I suggest starting a demo account atseveral brokers to get a feel for their platforms and see whattype of system is most comfortable to you. Choosing a forex broker is a very important decision, so takeyour time and do your due diligence. If you end up with a goodone, you'll have everything you need to succeed and will be ableto focus solely on trading the forex. About the author: This article is just a small piece of the free Forex Trading Course atforexgameplan.com. Go learn about this incredible market andsign up today while the 30 day course is still free.

Written by: Francis Gillen

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