When you want to start trading the Forex market the first step is opening an account with a brokerage. Finding a reliable online broker is not easy, as a large number of Forex brokers offer their services, each presenting itself as the best in the market. We have collected various criteria you should consider before making your choice.
Security is one of the most important attributes according to which you can screen the brokers. You certainly do not want that the brokerage goes bankrupt without returning your money. Traders usually do not have the possibility to determine which brokers are reliable, and which are not. Fortunately, there are two organizations that monitor the brokerages and protect the traders.
These organizations are the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC). They weed out the unreliable brokers among the decent firms. CFTC is involved in the regulation of abusive practices in the retail Forex sector. You may want to visit the CFTC.gov website to find information on customer protection and recent legal disputes against brokerage companies. Always ensure that the broker you choose is registered with CFTC and NFA in the US, or with relevant authorities in case you choose a broker in other countries.
The fee for the broker's service is usually charged in the form of spread that is the difference between the bid and the ask. The spreads of the retail brokerages are wider than the spreads in the wholesale interbank market, thus the broker makes a profit on each trade. You have to pay this fee regardless of the profit or loss you make with your trade.
A wide bid-ask spread takes more money out of your pocket, therefore it is advisable to open an account with a brokerage that offers competitive spreads. Although you can choose a broker charging somewhat higher spreads, if the company has a good track record. But, for example, the spread for the EURUSD pair should not exceed three.
Deposits and Withdrawals
Before opening an account with a broker the criteria of deposits and withdrawals need also be examined.
When you open an account, an initial deposit needs to be placed. Many of the beginning traders do not want to risk high amounts first, that is why they look for a brokerage that offers low initial deposit requirement. An established brokerage company might though require a relatively high initial deposit. The Forex market is usually so volatile that an undercapitalized account is likely to be wiped out soon as a result of the fluctuations. Big brokerages often ask an initial deposit of at least $500.
It is also important that you can easily withdraw your earnings. The broker is only the custodian of your money, when you want to withdraw your funds, it should happen with no delays and at reasonable costs.
The next important variables to look for in a broker are margin requirement and leverage ratios. For beginning traders, realistic and modest leverage is inevitable. The lower the leverage the better, the minimum leverage available is a useful criterion. Brokers that offer leverage over 100:1 are encouraging traders to risk a lot and lose their money quickly. Higher leverage is only advisable for experienced traders. Beginners must be allowed to get used to leverage on a step-by-step basis, therefore it is advisable to select brokers who offer a choice of margin requirements.
Another important aspect that must be considered when comparing brokers is the trading platform. In online Forex trading, all activity is conducted through a software. An efficient trading platform allows a high level of automation, and reduces human interference. A good platform offers numerous charting tools and technical indicators for evaluating price movements and can be customized to suit the traders' requirements. Furthermore, the appearance of the platform needs to be uncomplicated and pleasing.
eToro.com is a Forex Platform where you can sign up and get a FREE Unlimited Practice account. This can be a great starting place to help you learn the in's and out's of Forex trading in Currencies, commodities and stocks indices trading.
SpeedTrader.com also offers a top notch Forex Trading Platform, as well as a FREE $50,000 Practice Account to start trading now.
A friendly, patient and efficient customer service makes a good brokerage. In case of problems with the trading software, or issues with deposits and withdrawals, traders need the aid of the customer service. During the choice of the broker, it is advisable to read users' reviews on customer service of various brokers. A professional customer service is run by individuals who understand the Forex market.