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.

What You Need To Be Aware Of While Choosing a Forex Broker

Just as it is in other businesses it is not uncommon to hear about forex broker scams. The fact of the matter is that even a well reputed forex broker can cheat you because there is no formal regulatory central agency the way there are stock exchanges for the stock market. This is also the reason why it is extremely crucial to know how you choose your forex broker and understand how s/he can cheat you.

One of the most common ways that a forex broker can cheat you is to provide you with fake rates of currency pairs. Keep in mind that brokers have access to better technology and can choose to show whatever price they want to. The fact is that every broker offers a different spread on currency pairs and this will always differ from the actual quotes in the interbank market. This gives brokers a chance to change rates whenever they want to. The best part is that they are on the right side of the law as they are covered by the terms and conditions of the contract you sign with them.

Fraudulent brokers can easily programme cheating schemes into their trading platforms. For example, they could fraudulently run your stop losses to make more money out of you. However, at the same time it must also be said to their credit that good brokers do not normally indulge in such fraudulent practices and do not change their spreads simply to cheat their clients.

To protect yourself from forex broker scams it is necessary that you check the rates offered by your broker with other sources, preferably with interbank rates.