During the recent years, there is big influx of Forex brokers that cater to the home investors like you and me. Some of these forex brokers have good reputation among currency traders while there are also foreign exchange brokers which are bucket shops and scams. Hence it is important that you take your time to select the right forex broker for all your currency trades to avoid the scams online.
How to Select a Forex Broker?
All of us start forex trading with the hope of making lot of money. Many of us like the idea of trading currency online to gain huge returns on our investment. The advertisements and articles we come across on websites online make this sound almost inevitable. However you must know that forex trading is full of risk and lot of people get their fingers burnt if you do not have good forex trading system in place. You could simply lose your initial deposits, particularly if you start trading too early.
When you are considering a forex broker, check his website to see if the broker is stating the risks visibly. If a forex broker is trying to hide the risk factors or even mentioning it anywhere on his site, it is an indication that the broker is trying to get your money rather than helping you to make money. If you are new to currency trading you should perhaps seek a foreign exchange broker who will shield you from margin calls by automatically closing your trades in case your funds become exhausted. Although this is a terrible condition that you will wish to avoid, it is better than losing lot of money with a broker, to whom you are committed to paying more than you had in your forex account.
Currency trading is frequently done with leverages. Traders go for 100, 200 or even 400 times leverage with the hope of making maximum profits. This means that your can trade or control 100-400 times funds what you have in your forex account. But big leverage means bigger risks which can result in big profits as well as heavy loss. For instance, if you have $200 funds in your forex account you can trade lots of $20,000. So when you make profits you will make 100 times, but if the price moves against your expectations, you could be down by much more than $200. In order to avoid this you can put your own stop losses into place. However it is valuable to go with a forex broker who will do this in case you overlooked the stop loss which can happen once in a while.
A forex broker might provide you a range of services including forex signals, charts and technical analysis through their forex platform. You might want to do a comparison between the forex charts provided by the different brokers to make sure that which broker provides the chart which you need and will be helpful for you in future. Consider how you would like to utilize and combine these forex charts and make sure that the broker of your choice is providing what you want.
Reliability of Software
Dependability of the broker’s software platform is another factor you must consider. If the software is not reliable it could freeze or go offline and as a result you could lose the ability to control the trades properly. The forex broker company’s own forum is the best place to find out if the users are happy with the reliability of the software platform as well as support provided by the broker. In case the broker doesn’t have a support forum open to public, other popular forex forums can also be used to find opinions, but some times you will find opinions from people who never used the particular broker and this won’t help us. You know that currency trading market is live 24 hours a day for 5 days during the business week and you should be able to get support from the broker for 24 hours too.
Forex traders make their money from spread(also see Forex PIP), which is the difference between the selling (bid) price and buying (ask) price. Most traders consider the spread while choosing a forex broker account since lower the spread lower the money you will have to part with the broker. This is especially true if you are using a forex trading software like FAP Turbo or Forex Autopilot. However just because a forex brokerage company claims that they offer low spreads, it doesn’t mean that you should select that broker. Many brokers use this as a marketing gimmick by offering low spreads only for less popular currency pairs. And in some cases the low spreads are not permanent. Hence, even though a broker offering low spreads is preferred, spread should not be your only consideration when choosing a forex broker, instead go for an honest, reliable foreign exchange broker.
Make sure that the forex broker has been business for a while and they have a good reputation among traders. You don’t want to invest your money with a new forex broker who might run away with your money. Also check it the forex broker is certified by regulatory bodies like CFTC which will provide you protection in case the forex broker goes out of business.