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Foreign Exchange Brokers: What To Look For

Foreign exchange brokers that cater to the retail investor are springing up all of the time all over the world. What should you look for in selecting a forex broker and how can you be sure you are getting the best?

Everybody starts out currency trading with hopes of having big returns and some of the publicity that you will see will make this sound almost inevitable. In fact of course currency trading is full of risk and many people get their fingers burnt. You could easily lose your startup funds, especially if you start trading for real too soon.

Be sure that you are signing up with a broker who states the risks clearly. When you are starting out you should probably look for a company that will protect you from margin calls by automatically closing your trades if your funds become exhausted. Of course this is a bad situation that you will hope to avoid but it is better than finding you are committed to paying more than you had in the account.

Forex traders often work with 100, 200 or even 400 times leverage. This means that the funds in your account can control 100-400 times their own value. With $100 of the funds in your account you can trade lots of $10,000. So if something goes wrong and the price moves unexpectedly against you, you could be down by more than $100. You can put your own stop losses into place but it is useful to have a broker who will do this in case you forget one time.

Of course you also want to make sure that the brokerage company is honest and will not disappear with your money. If they have been around for a while or form part of a large, reputable company that is a good sign. Another valuable point to consider is whether they are members of any regulatory bodies. This may give you protection if the company goes out of business.

Foreign exchange brokers will offer you various services including charts and technical analysis through their software platform. It is important to know what charts you are likely to need not only for your current system but for other ways that you may want to trade in the future. Compare the charts provided by the different brokers. Think about how you would want to use and combine them and make sure that your chosen broker offers what you need.

You will also want to be sure about the reliability of the software. If it goes offline you could lose the chance to control a trade. Try to find feedback on forex forums or the company’s own forum if there is one, to check how satisfied users are with the reliability of the software platform and also the support provided. Forex is a 24 hour market during the business week and you should be able to get support 24 hours too.

Spread is something that most traders look at when selecting a brokerage account. This is the difference between the bid and ask prices and it is how forex brokers make their money. You may be tempted to go with a company because they offer a low spread but remember that it may not be permanent and probably does not apply to all currency pairs. Spread should not be your only or even your main consideration when considering foreign exchange brokers.

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Saturday, June 20th, 2009 Brokers No Comments