How to Find a Good Forex Broker

What You Need to Know About Working With a Forex Broker

If you're just starting out as a Forex trader or even casually considering the idea of Forex trading, working with a broker can be extremely helpful. It also involves some risks. It can be a perplexing task to figure out where to find a Forex trading broker or a brokerage that offers Forex trading services, and a bit of a challenge to make sure the broker or brokerage is reputable and can meet your needs.

Why a Broker Is an Important Decision

Ask yourself what type of company you would call if you should have a trade dispute. The purpose of this question is twofold. First, is it a reputable company that will honestly look into a trade in which you feel that you've been wronged? Second—and arguably more important—are its financials made available to the public and are they regulated?

Both financial transparency and regulation are of paramount importance when it comes to how comfortable you should feel with your broker. As volatility has picked up in the foreign exchange market, we've seen undercapitalized brokers shutting down shop with little warning. This can leave traders in a significant mess. If you understand the financial positioning of your broker, you can understand whether he'll be able to weather the upcoming storms and volatility in FX. 

The Importance of Regulation

Whether a brokerage is regulated will determine who you can turn to if you're dissatisfied with the resolution of a trade dispute. Think of it as a form of insurance. Of course, you hope that you'll never have to use the policy, but you'll sure be happy when it's made available on a rainy day.

Some of the most distressing calls I've received from FX traders are those coming about because an unregulated broker shut down overnight or refused to process withdrawals. The trader had nowhere else to turn when the unregulated broker refused to honor his side of the trade agreement.

Now that you understand the why, it's time to answer another important question: How do you do it? How does a new Forex trader or enthusiast go about finding a Forex broker?

1
Demo Accounts

The San Paulo Stock Exchange
Rafael Matsunaga - Flickr

When you've found a broker you're interested in working with, open a demo account to try him out.

2
Forex Broker Reviews

Look around for Forex broker reviews. Be sure to read reviews from multiple sources.

3
Use Google

You can do Google searches to find Forex brokers, but this method might not tell you much about the brokers themselves. Make sure to read all the reviews and try demo accounts to make sure you're comfortable with a broker before committing a large sum of money to an account.

4
Forex Forums

Visit some Forex forums to get input from people who are already trading. There's a wealth of information hiding in Forex trading forums. It's one place where you can research both bad and good experiences with different Forex brokers.

You Can't Be Too Careful

The number of foreign exchange brokers has plummeted since late 2007 and a lot of the "weak hands" have been washed out of the market. But due diligence is still necessary when you're deciding who to partner with for your trading.