Once you’ve decided that FX trading is the way to make money, you’ll have to start thinking about choosing a Forex broker. But don’t base such an important selection solely on advertising. This is the time when you need to perform due diligence and research the different market dealers available.
What Forex novices don’t understand is that not all brokerage firms are reputable or trustworthy. Keep in mind you’re entrusting your capital to a total stranger. So you’ll want to investigate the company’s track record for customer satisfaction and its standing in the industry. As you’ll find out, although the Forex market is not heavily regulated, brokers still have to adhere to some form of control. In the United States for example, they have to belong to the National Futures Association or the Commodity Futures Trading Commission. For the United Kingdom, the Financial Services Authority serves as the regulatory agency. So before you open the account and make your initial deposit, make certain the firm is part of one of the country’s regulatory entities.
Second, find out how much you’ll have to pay for a Forex trade. While there aren’t commissions or start up fees, you still need to be aware that there are transaction costs in the form of spreads. That’s right! Whether you’re a Forex online trader who prefers to scalp, or you’re a long term position holder, there are costs associated with buying and selling currencies. It’s always advisable that you select a broker with well-established relationships to the major banks, as this way they’re able to offer tighter spreads. Note though that there will be times especially during important Forex news when a trader cannot guarantee the spread. It’s during these periods when spreads can go up a bit. In addition to narrow spreads, a broker with a good reputation will always offer you up to the moment price quotes. This is certainly crucial when Forex trading. Having a Forex trading software that gives you a currency’s price with a lag of even a few seconds could be disastrous for your chances at profitability.
Execution should also enter into your consideration for the right brokerage firm. It’s certainly a must that you find a broker who will fill your order with the price with which you hope to open your position. This should never be an issue especially during calm market conditions. But do expect a degree of slippage when the currencies experience volatility. Technical analysis of the charts will indicate when those times take place; or you may anticipate that they will occur when important news is released; it’s likely you’ll notice rapid fluctuations of the foreign exchange rates. Lastly, talk to other traders about their experiences with a particular brokerage company. Being able to reach a representative in the event of a technical malfunction or a discrepancy in your account is just as crucial. Make certain the broker is available when you trade and that the firm lives up to its promises.