Day 4: How to Evaluate Forex Brokers:

Welcome to FxST™ Five Day eCourse – Start Forex Now! The topics covered in today’s course are the following:

  • Searching for a Broker – What to Look For
  • FOREX Research Tools & Information
  • Creating a Business Plane – ProfitProtectionSystem™
  • Dangers of Leverage – Your Friend or Enemy
  • Types of Accounts – What Account Fits YOU
  • Disreputable Brokers – Do Your Research

Learning Goal: What to Look for in a Broker & What Types of Accounts Brokers Offer

Level: Beginner

Getting Started In The Exciting World Of Forex Trading

Learning to trade Forex is not necessarily difficult; however, there are definitely a few items you must be aware of and instructions to follow in order to avoid the “Darkside” of Forex. Before beginning any trading, obviously you need to locate and forge a relationship with a broker to execute the trades. Just as with doctors, lawyers and other professions, there are a multitude of Forex brokers from which you can select.

To help you choose, here are some factors to consider:

  • Minimal Spreads – Brokers earn their income from what is called a spread. The spread is simply the difference between the buy and sell price of currency at a particular point in time. As you locate and investigate the brokers, you should inquire as to the spreads they charge. The lower the spread, the less it will cost you to trade in Forex. We can not stress enough how important it is to test demo accounts with multiple brokers, before opening a Live account. It is in your best interest to choose a Forex broker offering a low spread.
  • Compliance and Reputation – Traditional stock trading brokers generally operate through their own brokerage houses. Forex brokers, however, are most often affiliated with a large bank or other financial institution. This is due to the substantial sums of capital required. In addition, you should confirm that the Forex broker you choose is properly licensed, registered and has a good reputation. Forex brokers should be registered with the Futures Commission Merchant (FCM). IN addition, they are regulated by the Commodity Futures Trading Commission(CFTC). You can locate and verify the registration as well as other facts and background information at the CFTC website at http://www.cftc.gov . Without a doubt, you want to retain and trade through a broker who is affiliated with a reputable bank or financial institution.
  • Research Tools and Information – Like traditional stock and commodity brokers, Forex brokers maintain various types of websites, trading platforms and underlying research and information portals. The sites should provide you with real time information, current charts, technical information and comparison ability and other relevant data. A good Forex trader will also sustain the ability to trade on different systems. As with any major financial endeavor of this type, ask for a free demo account so you can evaluate the Forex broker’s various trading platforms. Forex brokers should offer a wide array of information, schedules, tools and other support functions, along with personal records.
  • Variety Of Leverage Options – To succeed in Forex trading you must master how to trade with Leverage. Many FxNewbies™ & FxMechanics™ fail to respect the leverage and end up getting themselves in trouble. You are using more than your actual capital borrowed from the broker to make the trades which is how you Leverage larger amounts for your trades than you actually have in cash. A wide majority of brokers will allow you to leverage up to a 100 to 1 ratio. This is why the FxST has created our state of the art ProfitProtectionSystem™, allowing us to manage our trading exactly like a business. Members can download the PPS™ off our website after logging in.

Dangers of Leverage – Your Friend or Enemy

You need to be careful, however, because the leverage ratio is directly related to risk. The higher the ratio, the more you are effectively borrowing from the broker. While you can earn more profit from the trades, you can also lose more if the price fluctuation is not in your favor. This risk reward evaluation is based on your own capital amounts and your tolerance level for profits and losses on the trades. A general trading rule is, never risk more than you expect to make.

If you are flush with capital, leveraging a higher amount is not as much of a concern. Nevertheless, brokers offer a large number of leveraging ratios and you will certainly find one or more to fit your desires and financial constraints. Even if you have a good amount of capital and can accept a certain amount of risk, you may not want to leverage a high amount if the market becomes volatile such as with exotic currency pairs.

Types of Accounts – What Account Fits YOU

You will need to open an account with a broker to execute trades. There are a variety of types of accounts which you can maintain:

  • Micro Account – The smallest account available in Forex. It has a low minimum opening balance requirement of approximately $25.00, depending on the broker.
  • Mini Account – Provides you with a high ratio of leverage since you are using a small amount of capital with which to execute larger sums in your trades. The minimum account balance is approximately $2,000.
  • Standard Account – This type of account provides a multitude of various leverage ratios. It has a higher minimum balance to open of approximately $10,000.00.
  • Institutional Account -These require substantially higher minimums to open, such as $25,000 to $50,000 depending on your broker. They also offer you multiple ratios of leverage as well as give you access to additional platforms, tools and other premium services.

As you evaluate and pick a broker, find one that has the right mix of accounts, leverage, information and services for your requirements and financial circumstances.

Disreputable Brokers – Do Your Research

Just like in any profession, there are good and bad representatives. Brokers are no different. Some are reputable and others are the ones you just need to avoid. These are the brokers who do not have your best interest in hand and simply buy prematurely or sell near a preset price point to increase their own profits. These brokers will pick up at least a fraction of a penny against nearly all of your trades.

None of the brokers you evaluate will ever admit to such trading, but there are methods to determine if you are considering a broker who engages in this practice. Avoid brokers with “dealing desks” or “second looks”, this will decrease your chances at choosing a poor broker. You can speak with other brokers to get their opinion on the one or more that you are considering. Online forums, and other traders tend to provide quality information as well. There is no organization that tracks this type of activity. You can try to look on the Internet for discussion boards or messages that might disclose certain brokers and their trading activity.

Check out our Start Forex Now video course if you are ready to jump into your dream today – CLICK HERE

Chief-Master Trader, Armando Martinez


To Your Success,

Armando Martinez
FxST Chief Master Trader

P.S. Only one more day in your FxST Start Forex Now
eCourse, you should take a peek over at the video
courses we have on our website if you are ready
to Start Your Forex Business NOW!

Coming up next … DAY 5

Benefits of Forex Trading – Why you should be Trading

  • Margin Calls – A Deeper Understanding
  • Margin Agreement – Your Brokers Requirement
  • Fundamental Analysis – 6 Major USA News Events
  • Technical Analysis – 8 Forex Trading Indicators