Foreign Exchange Brokers: How to Choose

Foreign exchange brokers are in abundance around the world with new brokers entering the market every day. So how do you set about choosing a good forex broker?

Firstly, look at the way they advertise. What are they saying to you? Of course they will want to attract your custom by telling you about the benefits of forex trading and the possibility of making lots of money. However, they should also be realistic and tell you about the risks. Many traders entering the market for the first time are blind to the risks and 'dive in' too soon.

Look for a broker who clearly states the risks and in doing so gives you some automated protection in your account, particularly the closing of trades when the funds in your account are in danger of being insufficient to cover a losing trade. This is particularly important for beginners who may not spot a potentially bad trade until it's too late. Be aware of the leverage offered. In the Forex market we see the highest leverage ratios being applied. Typically 50:1, 100:1 or even 200:1. At the lower end, 50:1 or 100:1 is normally provided for a standard trade of 100,000 units of a given currency. For smaller trades of $50,000 or less 200:1 is the norm. So make sure you understand how to apply stop losses and make sure your broker will hold your hand on this and apply stop losses automatically until you acquire the necessary trading knowledge and skills.

Look for a broker who has been around for a while and can demonstrate a good track record. We wary of customer testimonials on their website. You have no way of knowing if they are genuine. Look for credentials such as membership of a regulatory body. Are they supported by a reputable parent company?

Look for a broker who will offer you a complete service from tutorials, demo or paper trading accounts for beginners and full chart and technical analysis support with a variety of 'off the shelf' trading systems for you to try and bespoke systems you can develop for yourself as you become more proficient.

Look for a broker offering reliability and backup servers. You need to be sure that you’re in control of your trades 24/7. Does the broker provide a customer forum on their site? This is a good sign and gives you the opportunity to visit the forum and research problems that existing customers may have experienced. If they don't have their own forum, visit one or two of the popular forex public forums and don't be afraid to ask questions.

Finally, look at the spread being officered by the foreign exchange brokers. This is how they make their money. Is the spread on offer consistent with all forex pairs?