Basic Forex Brokers Primer

Global forex market nearly $2 trillion a day

The global daily forex market – which transacts nearly $2 trillion a day – is almost entirely dominated by large (scratch that, huge!) institutional investors. But that doesn’t mean that there’s no room for the smaller currency traders. Individual traders, accounting for about 2% of the currency market (do the math – that is not chump change!), are the reason that forex brokers number into the thousands – there is plenty of money exchanging hands, and there is a huge demand for qualified, reputable forex brokers.

   The majority of forex brokers happily transact with small currency traders, because simply by virtue of the volume of income they generate, they are a worthwhile segment to pursue. Similarly, currency traders need to have their currency transactions facilitated by forex brokers, and the simplicity of being able to do business online makes them very attractive. It’s a win-win scenario for all parties involved.
 

    Individuals interested in currency trading first have to spend a little time weeding through those thousands of forex brokers to determine exactly which ones are qualified and reputable, because you will be entrusting them with your money. To that end, there are several important questions you should pose to help you assess whether or not you want to retain their services and if their services are sufficient for your needs (and your wallet).

What account types does the forex broker offer?
 

   Some forex brokers offer several tiers of accounts, all of which depend on your initial deposit. Even the smallest of small currency traders can open up a mini account, with as little as $250, though the ability to use leverage in mini-accounts may be severely limited or even non-existent. Some standard accounts require an initial outlay of capital in a minimum amount of $250, up to as much as $2,000; leveraging options and amounts will vary among forex trading brokers. Finally, a premium account will call for a much larger capital outlay, and leveraging options will generally be numerous. Understand that leverage options will vary depending on the account type.

What is the forex broker’s spread?
 

  A spread is calculated in something called “pips,” and all currencies are bought and sold in pips. The lower the spread (the fewer “pips,”), the less money you spend on your broker services (hence, the more money you save on broker services).

Who provides the forex broker with financial backing?
 

  Forex brokers need to have a major financial institution in support of their firm; ask which bank backs their trading activities. Also, ask which regulating authority they are registered with. A broker that hems and haws and cannot provide a quick, straight answer should send up red flags.

Currency traders know that it’s important to find a forex broker who not only wants your business, but who will go out of the way to keep your business. Equally important is finding a forex broker who not only knows what he’s doing, but does what he says he’s going to do. All combined, that’s a little thing called integrity.