Here are some basic questions to guide a potential investor in choosing the right Forex broker:
Is the foreign exchange broker accredited or fully compliant with regulations?
Do check if the Forex broker is registered. In the US, there is the Commodities Futures Trading Commission. The investor can also check if the broker is a member of the National Futures Association. Essentially, do check the background of the broker.
What account details are offered?
It is important to ask if there are minimum amounts to invest in order to participate in trading. Some brokers allow traders to start with as little as $100, whereas others require as much as $10,000.
Another area to check is the amount of leverage the broker allows one to use. Essentially, this leverage acts like a loan to magnify the money the investor is going to put in. Either it magnifies the wins or magnifies the losses. Typical leverage amounts are 50:1 or 100:1; some firms allow as much as 500:1, and even 1,000:1. Enticing as these levels may be, when starting out, stick with very low leverage such as 50:1 or you will quickly ‘burn up’ your account.
Other questions worth asking are the commission levels of the brokers or how much they’ll earn off the trade. Typically, this is referred to as the ‘spread’.
Another subject to address is how one can deposit and withdraw the money. Of course, the easier it is, better for the investor. Some brokers will allow clients to use PayPal, which is a trusted platform.
What currency pairings are being offered?
Forex trading is done in pairs. More importantly, does the FX broker have the currency pairs that the investor is interested in? Every broker offers the ability to trade major pairs like EUR/USD, GBP/USD, and AUD/USD. If, however, you want to trade ‘exotics’ like USD/NOK, USD/SGD, USD/SEK, you will have to search a bit harder to find qualifying brokers; as well, be aware that trading costs are typically higher for exotics because of low liquidity.
What level of customer support is being offered?
Since currency trading is a 24-hour business, it is best if the broker can also offer 24-hour customer support for the investor. Can the FX broker’s customer support answer inquiries immediately? Do you have an account manager you can chat with on the phone, or who answers emails quickly? Sometimes it is worth paying a bit more in commissions if it means better support, especially if you are new to trading.
What is the trading platform that the broker uses?
The trading platform is the software program that the broker uses for investor/clients to monitor or enter the markets. The investor should find out if the software is easy to understand and use in order to facilitate buying and selling of currency. It will be a plus if the program offers analysis for the investor. This way, an investor can easily spot potential trades. MetaTrader is among the most popular, but brokers often offer their own proprietary systems as well, so you may want to experiment with a practice account first before choosing a platform or a broker.