When we discuss about forex brokers, we have to distinguish between two types of brokers:
Good brokers and Bad Brokers
The bad ones, are also known as "Bucket Shops". These types of bad brokers are scammers. They actually formulate a losing environment to you despite your brokerage account is making substantial winnings. Money will go into their pocket.
In fact forex brokers are mostly disliked by most companies and individual investors. In fact most beginning traders complain about Forex Brokers that try to dig out all of their hard earned investments and money.
However, you should also keep in mind the fact that those good forex brokers are obviously the ones who are letting you to really trade at unheard of so called margin levels; besides, they are giving you the liquidity by pooling numerous streams of international banks and also they are giving you a special platform for doing it as well. Without any doubt, we should still keep an open mind towards Forex brokers that they are not completely out to slaughter you.
Tips on Choosing a Broker
There are many forex brokers to choose from, just as in any other market. Here are some things to look for:
Low Spreads- The spread, calculated in "pips", is the difference between the price at which a currency can be purchased and the price at which it can be sold at any given point in time. Forex brokers don't charge a commission, so this difference is how they make money. In comparing brokers, you will find that the difference in spreads in forex is as great as the difference in commissions in the stock arena.
Learning Principle: Lower spreads save you money!
Quality Institution- Unlike equity brokers, forex brokers are usually tied to large banks or lending institutions because of the large amounts of capital required (leverage they need to provide). Also, forex brokers should be registered with the Futures Commission Merchant ("FCM") and regulated by the Commodity Futures Trading Commission ("CFTC"). You can find this and other financial information and statistics about a forex brokerage on its website or on the website of its parent company.
Learning Principle: Make sure your broker is backed by a reliable institution!
Extensive Tools and Research- Forex brokers offer many different trading platforms for their clients- just like brokers in other markets. These trading platforms often feature real-time charts, technical analysis tools, real-time news and data, and even support for trading systems. Before committing to any broker, be sure to request free trials to test different trading platforms. Brokers usually also provide technical and fundamental commentaries, economic calendars and other research.
Learning Principle: Find a broker who will give you what you need to succeed!
Wide Range of Leverage Options- Leverage is necessary in forex because the price deviations (the sources of profit) are merely fractions of a cent. Leverage, expressed as a ratio between total capital available to actual capital, is the amount of money a broker will lend you for trading. For example, a ratio of 100:1 means your broker would lend you $100 for every $1 of actual capital. Many brokerages offer as much as 250:1. Remember, lower leverage means lower risk of a margin call, but also lower bang for your buck (and vice-versa).
Learning Principle: If you have limited capital, make sure your broker offers high leverage. If capital is not a problem, any broker with a wide variety of leverage options should do. A variety of options lets you vary the amount of risk you are willing to take. For example, less leverage (and therefore less risk) may be preferable for highly volatile (exotic) currency pairs.
Account Types- Many brokers offer two or more types of accounts. The smallest account is known as a mini account and requires you to trade with a minimum of, say, $250, offering a high amount of leverage (which you need in order to make money with so little initial capital). The standard account lets you trade at a variety of different leverages, but it requires a minimum initial capital of $2,000. Finally, premium accounts, which often require significant amounts of capital, let you use different amounts of leverage and often offer additional tools and services.
Learning Principle: Make sure the broker you choose has the right leverage, tools, and services relative to your amount of capital.
Things to Avoid
Sniping or Hunting- Sniping and hunting- or prematurely buying or selling near preset points- are shady acts committed by brokers to increase profits. Obviously, no broker admits to committing these acts, but a notion that a broker has practiced sniping or hunting is commonly believed to be true. Unfortunately, the only way to determine which brokers do this and which brokers don't is to talk to fellow traders. There is no blacklist or organization that reports such activity.
Learning Principle: Talk to others in person or visit online discussion forums to find out who is an honest broker.
Strict Margin Rules- When you are trading with borrowed money, your broker has a say in how much risk you take. As such, your broker can buy or sell at its discretion, which can be a bad thing for you. Let's say you have a margin account, and your position takes a dive before rebounding to all-time highs. Well, even if you have enough cash to cover, some brokers will liquidate your position on a margin call at that low. This action on their part can cost you dearly.
Learning Principle: Again, talk to others in person or visit online discussion forums to find out who the honest brokers are. Signing up for a forex account is much the same as getting an equity account. The only major difference is that, for forex accounts, you are required to sign a margin agreement. This agreement states that you are trading with borrowed money, and, as such, the brokerage has the right to interfere with your trades to protect its interests. Once you sign up, simply fund your account, and you'll be ready to trade!
Final Learning Principle
The forex market is the largest market in the world, and individuals are becoming increasingly interested in it. But before you begin trading it, be sure your broker meets certain criteria, and take the time to find a trading strategy that works for you. Remember, the best way to learn to trade forex is to open up a demo account and try it out.
Read more on Forex Brokers...
Selecting the Best Forex Broker Made Easy
Succeeding in the Currency Market via the Best Forex Brokers
Being a Broker Commission Forex Introducing Agent
Perform Your Due Diligence Using Forex Broker Reviews
How Selecting the Right Forex Brokerage Firm Can Improve Earnings
What to Look For In Online Forex Brokerage Firms
Step by Step Procedures to Selecting a Competent Forex Trading Broker
Getting the right online forex broker that Suits Your Trading Style
Important Things You Should Know About a Swiss Forex Broker
What Makes the Best Broker Forex Traders?
Who are forex brokers and what do they do?