How to Choose your Forex Brox

So you've finally made the decision to trade the forex market and want to open an account with a broker, but where do you start? If you don't already know the forex market is still largely unregulated although new guidelines laid down by the National Futures Association in the US about capitalization, finally came into effect on 21st December 2007. They are an attempt to force out brokers with insufficient funds and to offer traders better protection. However, here is my own personal checklist of questions you need to ask before parting with any money.

The most important questions are: what is the net capital, where is the brokerage based and who are the regulatory authorities. The quickest way to find answers to these questions is to ask the brokers directly! The NFA requirements are that brokers should have a minimum of $5m dollars plus a percentage of their clients' funds as a safety net. To my knowledge there are only 14 companies in the US which currently meet this criteria. It is unclear what is to happen to those brokers who fail to meet these guidelines but already 4 companies have been closed down.

Knowing the location of your broker is also very important because if they are offshore they may not be regulated. In the US your broker should both NFA and CFTC (Commodity and Future Trading Commission) registered while in the UK it is the FSA. Other countries will have different regulatory bodies so please check - it's your hard earned money.

Once you are satisfied with the broker's financial probity the next issue is what trading style does the broker allow. For example what is the broker's attitude to "scalping"? I recently spoke to a leading broker at an exhibition where I was told that whilst scalping was allowed, sniping was not! When I asked them to explain the difference there was a great deal of foot shuffling and avoidance of eye contact! Other brokers do not permit long term trading so please read the small print.

It is also important to establish the broker's policy on spreads and if they are widened when the market is volatile, especially during news announcements. Have a look in some of the many forums as this is one of the most hotly discussed topics, and will give you an indication of the best and worst brokers regarding this issue.

Finally, does the broker pay you any interest on your deposit - it is your money in their account, and you can be assured that they will be earning interest on these funds, so why should they keep it for themselves. I know of one broker who pays interest on a second by second basis.

Remember a little bit of research the beginning of your trading career can save you money and a lot of disappointment and heartache later on.