Forex, or foreign exchange, is the exchange of one currency for another. The forex market has been in existence for more than thirty years. A forex broker is a person or a firm that trades on behalf of investors in the forex market.[br]
Choosing the right forex broker is a complicated task, since the forex market is loosely regulated and requires minimum qualifications to begin trading. The two types of brokers for beginners or slightly experienced traders are:
Retail forex brokers: They are small scale brokers, with direct or intermediary access to the forex market. Some of them charge a commission for their service.
Market makers: The market makers are mainly large banks. They have direct access to the forex market. They focus selling and buying forex for their clients who are usually large corporations, financial institutions and high-net worth individuals. Both market makers and retail forex brokers earn money through the spread between the bid and ask prices on currencies, i.e. the difference between the price the customer pays and the price they pay to buy the underlying currency.
How to Find the Right Forex Broker
Different brokers advertise different schemes and attractions to entice investors. Here are some tips to find the right forex broker:[br]
- Check at the National Futures Association (NFA) website, which is considered a highly reliable source to find forex brokers. This website maintains one of the strictest standards for its voluntary members.
- Consult your equity broker or other financial experts and ask for referrals. Inquire about the firm’s or the person’s reputation as a forex broker. Use the NFA’s Background Affiliation Status Information Centre (BASIC) to complete your research.
- Contact brokers over the phone or meet them in person. Ask questions and try to meet a client of theirs to directly inquire about their customer service and competency.
- Make a list of those brokers that you find suitable and then go into the details of their terms and conditions. Do inquire about their spread, trading tools and affiliations.
- Opt for forex brokers who maintain low spreads. Spread is the difference between the buying cost and the selling cost of a currency pair. As forex brokers do not charge a commission, they make their money through this difference.
- Check whether the forex broker will feature real time data, news, technical analysis tools, real time charts and support for trading systems.
- Use online guides and reviews, such as those provided by EconomyWatch.com. These reviews give a good idea about the products, technologies and charges for the services provided by brokerage companies.