Forex Brokers – How To Choose

One of the most important things that a forex trader will do is choose their forex broker. It is true that your choice of forex broker can give you a psychological edge when trading forex currency . Going to various forex forums, you are likely to come across various complaints as to why a forex trader dislikes one or another of his brokers. Some forex traders are known to blame their own forex brokers for their forex trading failures.

Once a forex trader moves from the newbie stage to a more consistent trader, the choice of their forex broker becomes more important. This is because your choice of your forex broker carries risk and also costs in your trading and at this stage, each and every pip counts. Some of the criteria that you might need to think about when choosing your forex broker are.

1. Forex Regulation

The USA and the UK are becoming stricter when dealing with forex brokers. This is mainly due to the various forex broker collapses that started with refco . Most forex firms collapse and clients never receive their funds again. If you live in the USA or the UK and are worried about your forex brokers being safe to invest your funds in, the it is important to choose a forex broker who is either regulated by the CFTC or NFA in the USA or the FSA in the UK.

2. Tax Consideration

Though it is not spoken of often, since most forex trading is not regulated, most tax authorities in the world have yet to get a handle on how to tax forex profits or loses. This is one of the reasons why many forex brokers are registered in tax free areas like the Bahamas or the Cayman Islands. The USA authorities are yet to require forex brokers to report forex earnings and most forex traders are doing so because of the fear of not reporting such income. Forex brokers outside the USA are not required to report such income and are getting more clients with high net worth because of this reason.

3.Trading Platforms

A forex broker’s trading platform can speak volumes about the depth of their investment. It is upon the forex trader to choose a platform that he/she understands and is comfortable with .Choosing a trading platform with too many bells and whistles can slow down your trade execution especially if you are scalping. Some forex trading platforms are known not to allow scalping .

If you are using Metatrader to choose your trade entry ,it makes no sense to have a broker who is not using Metatrader. If you are in a region where downloading forex trading platforms is a hassle then choosing a java based trading platform would make more sense than having one installed in your computer. So choose a forex broker who’s platform is suitable to your specific needs.

4. Forex Spreads

A lot has been said about there being no broker commissions in forex trading. It is not entirely accurate. Forex spreads are your cost in forex trading and each forex trade has a bid and ask spread which is your cost of trading. If my broker’s spread is 1 pip less than yours and we both make some 200 trades a year, it means that at the end of the year, I will have saved $2000 compared to you on the very same trades other things being equal.

There are various reasons why you choose your forex broker and some even include the so called sixth sense. But before the forex trader commits his forex trading funds to any particular broker, one would be wise to take some time and do some due diligence.

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