Many currency traders have been attracted by the ability to make positive returns while the stock markets plummet. Others are attracted by a market which is open 24 hours a day. Either way, thousands of traders each day are signing up for an account with a forex trading broker. In this article we will examine factors which traders need to take into account when choosing a forex trading broker.

Over the past couple of years, more than one unregulated forex trading broker has been shut down by authorities for trying to defraud currency traders of their funds. One of the most important things to check with your forex trading broker is that they are regulated by the appropriate authorities. So, if you are in the UK, the relevant authority is the Financial Services Authority, and in the US, it is the National Futures Association.

A key consideration in choosing the broker to carry out your forex trading broker is how much commission they will charge you to make a trade, or how wide the ‘spread’ is between the bid price and the ask price. Typically, the spread on major currency pairs will be between 2 and 4 pips. Spreads on currencies such as EUR/USD and JPY/USD will be around 2 or 3 pips. Brokers with spreads wider than 4 or 5 pips for these major currency pairs should be avoided.

The basic aim of hiring a money manager is to have a professional looking over the market for the investor. In Forex, traded spreads are calculated in a special unit known as ‘pips.’ Spreads basically refer to the amount in which a particular currency is bought and sold at a given time, so all effective managed forex reviews will take into consideration. An important thing to understand is that the exchange of currencies does not take place in the central exchange. This means that the rate of exchange is likely to vary depending upon the expertise of the money manager. This increases the importance of conducting a thorough managed forex review, and is especially important for active forex traders.

Investors who used to trade with shares on the stockmarket, and who move into currency trading will have a new concept to deal with, called leverage. Each forex trading broker will offer varying levels of leverage. Leverage can drastically increase your currency profits, however it can also increase your losses. For example, if a broker offers 100 times leverage, this means that if you have a balance of $10,000, you can trade with a notional $1,000,000.

Similarly, if you have a $500 balance in your forex trading account, and your forex trading broker offers leverage of 500, then you can trade with a notional amount of $250,000. The risk of using higher levels of leverage means that if your trade goes against you, then you could get wiped out very quickly.

In the currency market, prices move very fast, in miliseconds, and so it is very important that your forex trading broker can ensure that your trades are executed just as fast, and at the price that you require. So for good measure, before you open a realtime forex account, you should trade with a demo account, and test how good the execution prices are, and whether they reflect the true prices in the foreign exchange market.

You will need a FX dealer who will provide you with a suitable charting and analysis programme with the trading account. Some currency dealers will run MetaTrader charting with their platform, and this is a very useful addition for a foreign currency dealer. This enables the investor to take a trade directly from the charts, and ensures that the investor gets a reasonable price.

For more information about currency brokers and currency trading strategies go to the Forex Village.com

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