Choosing a Forex Broker

The first thing you need to do to start trading Forex online is to open an account with a Forex broker. Just like stocks and shares you cannot start trading until you have some place to do it.

Choosing a Forex broker, or platform as they are also known, can be a difficult task for you as a new trader. After all you have have nothing to compare the different brokers to.

However, I will attempt to make your choice very simple by giving you an overview of the key things to look for when choosing a Forex broker.

1) Customer Support

As a new trader you will no doubt have questions that you need answering when you start trading. You may even need someone to help you start trading.

This is where good customer support is absolutely essential. You need to be sure that your chosen broker can offer you fast support, preferably by telephone, email AND live online chat.

This will ensure that no matter what questions crop up, you can get an immediate answer as and when you need it.

Some brokers such as Easy-Forex also offer personal account managers. This gives you a single point of contact and even personal tuition so you can start trading more effectively from the start.

Remember, Forex brokers do not make money based on how successful your trades are but on how many you place so it is in their interest for you to trade well and keep trading.

Click here to see my most recommended Forex Brokers

2) Low Minimum Deposit Amounts

As a new trader it is unlikely that you have a lot of money you want to invest. Initially you probably only want to risk a few hundred pounds and get used to Forex trading before you risk bigger amounts.

Therefore it is important that you find a broker that allows low minimum deposits, around $200 USD (Approx £120 GBP) is about right. Any lower than this and you are likely to end up paying more commission (pips) on each trade.

3) Type of Platform – Online Vs Download

This is something where there is no hard and fast rule about which one to go for.

Most brokers offer you one of two solutions, either you access their trading platform online, or you download their software to your PC.

Of course, both methods require and Internet connection but the one that is right for you will depend on how you intend to trade.

If you want the flexibility of being able to trade from any computer (or even your PDA/Mobile phone) then choose an online platform as you can access it from anywhere.

However, if you intend on always using the same PC to make your trades from then a downloadable platform will be fine. If in doubt always go for the online platform as this gives you the best of both worlds.

4) Live Rate Freezing

One sneaky method used by some brokers is that when you decide to place a trade the rate can change between you seeing the rate on your screen and executing the trade.

This means you may sometimes end up taking a higher or lower rate than you intended. Therefore some brokers allow you to freeze the rate you see for a few seconds until you can execute the trade.

This may not seem that important to you at this stage but trust me, it is and you will see the benefits if your broker allows you to freeze rates.

Click here for my Forex Broker Reviews

5) Stop-Loss Functions

Make no mistake about it, you can lose money trading Forex. As with most things where you can make money you can also lose money.

As a new trader the last thing you want is to lose your money. Therefore, choosing a broker that offers a ‘Stop-Loss’ function is the way to go.

A ‘Stop-Loss’ allows you to place a limit on the amount you can lose on any given trade. This gives you complete management over your finances and ensure you never lose more than you can afford.

6) Low Pips and Spreads

A Forex broker does not make money when you lose a trade, nor does it lose money when you win a trade. Instead they take a small percentage of every trade you make as their commission.

This commission comes from the spread, which is the difference between the real live market price and the rate at which your broker gives you.

This commission will be very small when you are trading with low amounts but it is still worth noting.

Look for the brokers who offer spreads of no more than 5 pips on the major currency pairs.

7) Compliance to Regulations

The final key consideration you should make before choosing a broker is to check that they are registered with a regulatory board of some kind.

It is not required by law for brokers to register with any boards, but each board has very stringent rules so if you choose a broker that is part of a regulatory board then you can trade with confidence.

There are many country specific boards that a broker can register with, for example in the USA the most common are the National Futures Association (NFA) and the  Commodity Futures Trading Commission (CFTC).

In the UK some brokers are registered with the Financial Services Authority (FSA), however many are registered with their local country specific body depending on where their head office is.

In this situation you should check that the body they are registered is recognised throughout the EU and this will ensure as a UK citizen you are covered.

You can also gain additional peace of mind if you can find out that your chosen broker has a registered office in the UK.

To find out which brokers I recommend that comply with these considerations please check out my Forex Broker Reviews.