Useful Tips for Choosing the Right Forex Broker

You can never be too careful while selecting a forex broker. There have been a number of scams in the forex market and there is an express need of separating fact from fiction. It is all the more important to choose the right broker because the forex market is not regulated the way stock markets are. There is also no centralised exchange system.

While selecting a forex broker it is important to check whether the broker is registered with the local broker’s association. Avoid getting carried away by a flashy and well designed website, if the broker is registered there should be a prominent message displayed on the landing page.

Absence of a central exchange system means that accounts vary with each forex broker. The most important things that you need to check and compare are the level of leverage and margins. Brokers are known to offer leverage up to 200:1. Leverage refers to a loan extended by the forex broker to a margin account holder. A 200:1 leverage means that with $1,000 in the account, the account holder can hold positions up to $200,000.

Check the commission that the broker charges. Most brokers do not charge any commission but make money with spreads. Spread is the difference between ask and bid prices. A forex broker will sell a currency pair at a price higher than the price at which he will buy the same pair. A spread could be fixed or it may vary depending up market volatility. The difference reflects that when you buy a currency pair, it immediately falls in value as the broker will buy it at a lower (bid) price. Wider spreads translate into higher profit for the forex broker.