If you’re looking at trading in the foreign currency exchange market (commonly known as the forex) and you have the classic Pink Floyd tune “Money” playing in your head, complete with the “cha-ching” sound, you might want to read this article first. With all of the forex brokers out there, ready and willing to take your cash to help you make your first trade, it may be a little intimidating finding a broker that can help your profits grow and not walk away with your cash! To that end, as part of your forex training, here are a few tips that will help you in selecting a broker that you can trust and not end up with a proverbial “bucket shop.”
1.“There is no risk!” Watch out for a company that claims that there is little or no risk in trading the commodities market. Any broker that is legitimate should tell you that there is ALWAYS risk! True, you can mitigate that risk with stop losses, sound trading techniques, and equity management, but there is always a risk involved in trading. If it sounds too good to be true, it usually is too good to be true!
2.“It’s in the background.” Check out the company’s background. If a company refuses to give you background information on their company or information about their customer’s experiences, beware! You may also want to check with the National Futures Association for any history of fines or deceptive trade practices by the company in question. Another excellent source of information is the Chicago Board of Trade. It’s there that you can check to see if the company is a registered “futures commission merchant” (or FCM for short). Companies registered with these two organizations are more likely to be legitimate than those that are not. In addition, there is a lot of information that can be found with these two organizations that can help you further your forex training.
3.“Millions are offered for the taking!” If a company says that you will make fantastic amounts of money in a short time, run for cover! Like anything else in life, to be a good forex trader takes time, effort, and LOTS of study. There is no magic bullet that will have you makings thousands in just a week (unless you’re the scammer!).
4.“Be careful sending cash!” Use caution when sending cash over the internet. Make sure the entity you are sending money to has satisfied your background check and that they are registered to business in a country with strong legal remedies in case a problem arises. Be especially wary about sending money to countries that have reputations for high levels of corruption and bribery.
5.“Margins, Margins!” Use caution when trading on the margin. Depending on the broker, it may make you responsible for more money than you actually deposited! A key part of your forex training should teach you how margins work and your broker’s approach to them before you trade margins.
6.“Which bank?” Watch out if a company states that they are safe to work with because they trade in the “interbank market.” To date, the interbank market is largely unregulated and is usually traded by central banks, multinational corporations and other big time players. A potential scam by a fraudulent currency trading firm may boast of good prices because they deal with the “interbank market.” It is most often the case that only extremely large concerns deal with the interbank, and again, it is not regulated and is a loose conglomerate large business and governmental organizations and institutions.
Now that you have some of this forex training under your belt, there are a few other ways to evaluate a broker. They are: websites that compare brokerages, forex training courses, word of mouth, and finally, checking in with an experienced retail forex trader who has good trading strategies and deals with his or her broker on a regular basis. Doing all of these things can help you make a great choice in selecting a forex broker which, of course, will help you keep that great tune “Money” playing in your head.