7 Tips to Help You Find a Forex Trading Broker

Before you can start trading currency, you need an account with a forex trading broker. The broker provides access to the markets; it's the broker that allows you to trade on margin - because the broker covers the balance of your purchase, whereas you pay only a small percentage of the cost - sometimes as little as 1%.

There are lots of brokers available - how do you decide which one to pick? Here are a few points to consider when you're deciding where to place your forex account.

1. Reputable and dependable

First there is the issue of trust. If you only know your broker as a presence on the internet, you want to be sure he or she is not going to disappear with your funds. There is no central professional body that has firm control over the actions of brokers, so the industry is largely unregulated, although each country has its own set of rules. And as in any large group, most brokers will be worthy of your trust, while some will not. Your task is to make sure you deal with the good guys.

First, is the broker you are considering regulated? If you live in the United States, check your broker's registration with the CFTC (Commodity Futures Trading Commission) and the NFA (National Futures Association). You can check the NFA site to see if any complaints have been logged against the broker you are considering. If you live outside the USA, check your local regulatory organization.

What about your broker's software? This is the platform you will use each time you trade. The last thing you need is a system that is frequently offline. Given that choosing the right time to initiate or close out a deal, unreliable software could affect your timing and your potential profitability. Have a look at the forums involved in forex trading and see whether there is any feedback from other users about particular brokers and reliability. Don't give too much weight to the opinion of a single user, who may well have some kind of agenda in respect of a specific broker.

2. Support and service

The markets operate 24 hours a day from Sunday evening to late on Friday afternoon (EST). Make sure the broker's trading facilities are available the whole time (most will be) and that you can get support around the clock during trading hours - whatever the hour.

There are seven big league currencies - US dollar (USD), Canadian dollar (CAD), Great Britain Pound (GBP), European Union (EUR), Australian dollar (AUD), the Swiss franc (CHF) and Japanese yen (JPY). Make sure your broker covers all these currencies.

You should also expect your broker to provide charts and technical analysis, and of course to execute an order immediately at whatever price is displayed.

3. What it will cost

Forex brokers don't look for commission, but instead earn their income from the amount by which the buy and sell price differs on any currency pair. This difference is called the spread and is calculated in pips. The spread could vary from under 1 pip to around 3 pips; it all depends on the pair being traded - and of course the broker.

If you're not sure what a pip is, the three letters stand for "percentage in point". Prices are quoted to four decimal points (except in Japan, where they are quoted to the second decimal point). So if you got a price on a pair with a bid of 1.2015 and an offer of 1.2017, the spread would be 2 pips.

The size of the spread will impact on your profit over the long term, so examine your broker's terms closely. In particular, if you intend to focus on particular currency pairs, look at those spreads, as they will be more important. You'll probably also come across some special offers when deciding where to place your business, but don't be influenced too much by that sort of thing. Remember, it is a special offer, and will probably soon disappear once you have committed yourself to a particular broker.

Also take a look at the minimum you need to place in your account. Beginners should start cautiously, so search out a broker who is happy to let you start with around $250 in your account.

4. Requoting

Linked to your expectation of an immediate execution of an order at a displayed price, and the size of the spread, is the issue of requoting. Effectively what happens is that you are quoted at one price, but when the order is executed, you are charged at a higher one (when you buy) or a lower one than the displayed rate (when you sell).

While this can happen occasionally in even the most trustworthy of brokerages, it should not happen frequently. Again, check the forums to see if the broker you are considering is linked to this practice.

5. Margins and leverage

Brokers are businessmen; different brokers will ask for a different level of margin. If the margin is set low, it means that you will be operating with greater leverage. And that means bigger profits on the same account size. But be cautious, because greater leverage also means higher losses when you get it wrong - and you will get it wrong at some point or another.

6. Lot size

While lot sizes vary from one broker to another, a general rule is:

Standard lot - 100000 units;

Mini lot - 10000 units;

Micro lot - 1000 units.

You'll even find brokers with fractional lots, which effectively allows you to set the lot size that you want. Depending on your personal circumstances, this could either be an added benefit or just an unnecessary aggravation.

7. Miscellaneous

Not quite a seventh point but rather a grouping of other considerations. These include the level of interest you will be paid on the money in your account, any rollover charges, and any other hidden or "policy" charges. They are not generally of major importance but may be worth checking out.

Darrell writes for pleasure and builds websites when the markets close. If you need to organize and label a DVD or CD collection, find out how to print directly on to a disc at Dymo label printer or to find the easiest way to use a CD DVD label printer to turn a messy heap of discs into a beautiful and organized collection.

Article Source: http://EzineArticles.com/?expert=Darrell_Van_Zyl