How to Find a Good Forex Broker

What You Need to Know About Working with a Forex Broker

When starting out as a forex trader, or even just someone casually looking at forex trading. It can be a perplexing task to figure out where to find forex trading brokers, or brokers that offer forex trading services.

Why a Broker Is an Important Decision

Since coming into the Forex market in late 2007, the number of foreign-exchange brokers has plummeted. On one hand, a lot of the "weak hands" have been washed out of the market, on the other hand, there is still due diligence needed when deciding who to partner with for your trading.

Before answering the question why is a Forex broker an important decision, think about what type of company you would like to call if you have a trade dispute? The purpose of this question is twofold. First, are they themselves a reputable company that will honestly look into a trade where you feel that you have been wronged? Second, and arguably, more importantly, are there financials made available for public viewing and are they regulated?

Both financial transparency and regulation are of paramount importance to how comfortable you should feel with your broker. As volatility has picked up in the foreign-exchange market, we have seen undercapitalized brokers shutting down shop with little warning. The most recent example came with the sharp moves on August 24. If you can understand the financial positioning of your broker, you can understand whether or not they will be able to weather the upcoming storms and volatility and in FX. 

Secondly, whether a not a brokerage is regulated determines who you can turn to if you are unsatisfied with the resolution of a trade dispute. Think of this as a form of insurance. Of course, you hope to never have to use the policy, but you sure are happy when it's made available on a "rainy day". Some of the most distressing calls I have received from FX traders over the years are those who are coming from an unregulated broker who shut down overnight or who refused to process withdrawals, and the trader had nowhere else to turn when the unregulated broker refused to honor their side of the trade agreement.

Now that you understand the why. It's time to answer another important question. How does a new forex trader or enthusiast go about finding a forex broker?

Demo Accounts

The San Paulo Stock Exchange
Rafael Matsunaga - Flickr

Once you actually find a broker that you are interested in working with, open a demo account to try them out.

Forex Broker Reviews

Look around for forex broker reviews, you can find forex broker reviews here or on forex forums etc. Make sure to read reviews from multiple sources.

Use Google

Google around. Of course, you can do google searches to find forex brokers, but this method may not tell you much about the broker themselves. Make sure to read reviews, and try demo accounts to make sure you are comfortable with a forex broker before committing a large sum of money to an account.

Forex Forums

Visit some forex forums and get some input from people that are already trading. There is a wealth of experience hiding in forex trading forums. This is one place that you can research both bad and good experiences with different forex brokers.