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Choosing a Broker
There are certain questions that you will want to ask to your prospective FOREX broker. Such questions include:
1. What is the spread? (Hint: The lower the spread the more money you make!) a. The spread is calculated in “pips” and is the difference between the price at which a currency can be purchased and the price at which it can be sold. Simply put, your broker has to make money. That’s how they stay in business. Unlike traditional stock trading where brokers charge commissions, FOREX brokers make money off the spread. The lower the spread the more profit that there is for you.
2. What are your credentials? (Hint: There are certain affiliations you should look for.) a. Most large brokerage firms are connected in some way to a bank or financial institution. Since the majority of their business is based on credit, this is a very important partnership. Their affiliation offers you the opportunity to invest thousands more than you could with smaller firms. It is also recommended that your chosen FOREX broker be registered with Futures Commission Merchant (FCM) and regulated by the Commodity Futures Trading Commission (CFTC). Refer to your broker’s website or call directly to find out if they have such affiliations.
3. What tools are available to help me learn more? (Hint: Not all broker firms are created equal. Find out who offers the best resources and information to help you make the smartest trading decisions.) a. This is a critical question to ask. It is one thing to fulfill your trade requirements, but a FOREX broker needs to also provide you with educational tools. Ask what kind of tools they offer for their clients. A good company should offer real-time charts, technical analysis tools, real-time news and data, and software or website support. Be weary of any company that refuses to share information or trial versions before opening up an account. You will want to try out their system before you choose to invest money in it. Many offer test accounts that allow you to “play” the market without actually investing any capital.
4. What is your leverage? (Hint: This is the determining factor on how much money you are able to make with each investment.) a. Leverage is the key factor to your success. As discussed earlier, the FOREX market runs mostly on credit. Your FOREX broker is able to supply you with a different margin depending on their size and your needs. The higher the margin the more money you can possibly make. If you are limited on funds, finding a high margin FOREX broker is top priority. If you have the capital already, you may decide that a lower margin is a smart choice for higher risk transactions and vice versa.
About the Author
Brian Chanell is an online entrepreneur. Please visit www.ForexEducationcom to learn more about Forex trading
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