Forex trading companies: Finding the right one in a crowded marketplace

When you are considering opening a forex trading account the choice of your broker will make a big difference in your eventual success. It's worth the time and effort to do some research and find one that suits your needs and trading style. Here are several consideration you should keep in mind as you look for the right broker for your forex trading.

First, consider the spreads on the most important currencies - and the ones you're liable to trade. These spreads need to be competitive. Bear in mind, the spread is the difference between the buying and selling price, the bid and the ask. This is where forex trading companies earn their income, not on commissions as stock trading companies charge. On a common pair such as the EUR/USD you shouldn't have a spread larger than 2 pips. Some brokers, in an effort to slice it even closer, are offering fractional pips such as 1.8 - or they'll say “as low as 1 pip”. Important to keep in mind: spreads will always rise in times of greater volatility such as the release of a major news announcement.

Second, look to see if the company utilizes a dealing desk. There are certain benefits to using a firm that does not utilize a dealing desk: there is no conflict of interest - brokers do not trade against their customers; each trader is offered identical access to the interbank market; trading is completed secretly - your broker remains ignorant of your trades, your stops or your profit targets. Non-dealing-desk brokers are generally thought to be fairer towards their valued clientele.

Third, are your orders carried out rapidly and at the rates you stipulate? If you set a stop loss is it honored? I've seen some brokers say, “Your stop didn't take you out since the market was moving too quickly”… This is something you don't want.

Fourth, see if their customer service is proficient. When you phone can you speak with a real person quickly? Are you on hold forever? Do you have to plow through a bunch of programmed menu selections? Is their staff able to respond to your questions knowledgeably?

Fifth, open a practice account and trade. Do you enjoy using the platform? Do they offer the one you desire? Is there good training and education presented? What other services are available - market analysis, indicators, trading signals, forums, live trading rooms.

Lastly, do a broad Google search. What is the popularity of the firm? Look into several forums…practically all will have some debate about brokers. How do other traders feel about the one you're looking at?

Selecting the appropriate broker can be crucial to your trading profitability. It's best to check around and see what each offers. There are lots of websites that offer side-by-side reviews. Use demo accounts to see how they truly work. You may not come across one that meets all your desired features, but many do a good job of providing reliable service to the foreign currency trader.