Until recently it was a fairly simple process to figure out which fx broker was best for you as there were only a handful available. With the rise of the internet and the explosive growth of forex trading, the number of forex brokers has skyrocketed. It may seem overwhelming given the sheer number of forex brokers available to you, but by carrying out some simple research and doing your due diligence you will be able to pick a broker that’s right for you.
It might be a good idea at this point to back up a bit and understand what a forex broker actually does. Basically, a forex broker is a person or group of people that carry out trades for an investor. The nice thing about using a forex broker is that they don’t charge any commission per trade like you see with the stock market. Instead, forex brokers make their money by taking the difference between the bid price and the ask price of the currency.
Be wary of brokers that take too much of that spread as their fee as it can affect your profit margin. Ideally you want a forex broker that charges 2-3 pip spreads, and definitely avoid any that charge anything higher than 5-pip spreads.
Probably the most important factor to look for when choosing a fx broker is whether or not they’re regulated. Any U.S. based forex broker should be registered with the Commodity Futures Trading Commission (CFTC) and should also be a member of the National Futures Association (NFA).
You can visit the NFA’s website at http://www.nfa.futures.org/basicnet and look up any fx broker you’re interested in. Make sure you deal with a broker that has a clean record and has solid company financials. Any forex brokers that don’t meet either of these criteria should be stricken off your list of candidates!
Customer service is an absolute must when deciding on a fx broker. The forex market never sleeps, meaning you can trade any time of the day or night. It’s very important that any forex broker you choose have customer support staff that can be reached at any time, and provide assistance on very short notice. Take note of any positive testimonials on their site that reference the speed and reliability of their customer service, but also visit search engines and try to find other sources that may have written about their experiences with customer service. Good customer service can make a huge difference in your online experience with fx brokers, so it pays to do your research.
Find a fx broker that offers a trading platform you’re comfortable with. The vast majority of brokers offer both web-based applications and downloadable applications. The web-based platform allows you to connect from any computer in the world that has internet access, but can be slower than its downloadable counterpart. The latter has speed on its side, but can only be run from the computer it’s installed on. Whichever you choose, make sure the platform offers at least the basics, such as real-time quotes and up-to-date account information.
The criteria listed above are the essentials to choosing the right forex broker for you. Other services offered by the broker can be considered icing on the cake, but depending on your situation may also be viewed as critical to your decision making process. Some other factors you may want to consider are the minimum account opening deposit, timely execution of your orders and free charts and analysis.