There are so many brokers around these days they seem to be all over the place. Most of them advertise on the internet and each one claims to be the leader in the field. Brokerage sites make use of the most outstanding graphics, bright colors display constantly changing data while live stock prices go flashing across the page.
What is a new trader, eager to open an account and invest some money to do? It isn’t easy to select just the right broker but there are definitely ways to separate the wheat from the chaff.
Here are some tips to keep in mind before opening an account:
- Always ask your friends and family for referrals. Don’t sign anything on your own without speaking to someone in the know.
- Do your own research and due diligence. Compare brokers. Read reviews such as Daily Forex to see the differences between brokers.
- Once you have selected a broker, check out the site and decide which features offered by the firm are important to you. Do they have everything you are looking for?
- Check out whether or not the broker is properly registered with a bona fide financial regulator. The major regulators are the National Futures Association (NFA) or Commodity Futures Trading Commission (CFTC) if they’re based in the US and the Financial Service Authority (FSA) if based in the UK. Many brokerages have been forced to close down because of fraud and you certainly don’t want to become a victim of a scam.
- Always use the Forex broker’s demo account. If this feature is not offered, do not even consider opening an account with them. The demo account gives you the opportunity to experiment with virtual money and allows you to practice trading without the fear of losing capital. It also gives you a feeling of how well the brokerage handles trades.
- Don’t be afraid to ask questions. How much leverage are you allowed? What are the margin requirements? How wide are the spreads? Does it cost anything to open an account? What is the commission? Although the answers to these questions often appear on the site, they are not always obvious to the newbie trader.
- Try out the customer service. See how quickly they respond and how efficient they are.
If they don’t know the answer to your question, see how long it takes them to get back to you with a response or to have someone more knowledgeable return your call. Good customer service is not always a given.
- Understand thoroughly the platform used for trades. The trading platform is the investor’s gateway to the markets and traders should be certain that the platform and all software is easy to use, visually pleasing, has a variety of technical and/or fundamental analysis tools. Trades should be entered and exited with ease.
- Always start out with the minimum amount of deposit required. You want to tread lightly till you are more comfortable.
- Keep track of your account carefully for several months before coming to any conclusion regarding your broker. If you’re not satisfied, close the account and move on to another one.
Cina Coren is a contributing editor for Daily Forex.com and a freelance writer for several financial publications.