FOREX Brokers

Most FOREX traders use a broker to handle their transactions. What exactly is a broker?
Strictly speaking, a broker is an individual or a company that buys and sells orders
according the investor's decisions. Brokers earn money by charging a commission or a
fee for their services.
A FOREX broker needs to be associated with a large financial institution such as a bank
in order to provide the funds necessary for margin trading. In the United States a broker
should be registered as a Futures Commission Merchant (FCM) with the Commodity
Futures Trading Commission (CFTC) as protection against fraud and abusive trade
practices.
Before trading FOREX you need to set up an account with a FOREX broker. You may
feel overwhelmed by the number of brokers who offer their services online. Deciding on
a broker requires a little bit of research on your part, but the time spent will give you
insight into the services that are available and fees charged by various brokers.
The best advertising is word-of-mouth advertising, and this is just as valid in FOREX
trading as it is for any other type of business. Talk to friends and associates to see who
they are dealing with and find if they have any complaints or difficulties in dealing with a
particular broker.
You could try selecting a few online brokers and contact their Internet help desks to see
how quickly they respond to enquiries and whether or not they answer questions to your
satisfaction. Keep in mind, however, that pre-sales service may be better than after sales
service. This can be true for any online business, not just FOREX brokers.
Customer satisfaction and safety are just part of the story. You want to find a broker who
executes orders quickly and with minimum slippage. All online brokers should offer
automatic execution and have clear policies regarding slippage. They should be able to
tell you how much slippage can be expected in both normal and fast-moving markets.
Next you want to know the fees involved. What is the spread? Is spread fixed or variable
according to the type of account? Are mini accounts subject to wider spreads? Are there
any other charges? Smaller spreads mean more profit for the trader, but there may be a
trade-off between spread and service. Look at the overall picture before deciding to go
with a particular broker.
Margin accounts are the lifeblood of FOREX trading, so be sure you understand the
broker's margin terms before setting up an account. You need to know the margin
requirements and how margin is calculated. Does margin change according to the
currency traded? Is it the same every day of the week? Some brokers may offer different
margins for mini and standard accounts.
Trading software is very important for the online FOREX trader. Get a feel for the options
that are available by trying out a demo account at a few online brokers. Above all, you
are looking for reliability and the ability to perform well in fast-moving markets. The
software should offer automatic trading and may have special features such as trailing
stops and trading from the chart. Some features may only be available at an extra cost,
so be sure you understand what your trading needs are and how much the broker
charges to provide them.
Other information to find out about includes the broker's policy regarding minimum
account balances, interest payments on account balances, which currencies can be
traded and whether or not non-standard sized lots can be traded. You should also find
out whether clients' funds are insured and the extent of that insurance.