The following is a list of questions you may like to consider before opening an account. You can use this checklist to narrow down your selection of companies that fit your requirements. You may also wish to refer to the forex broker ratings page on this site to read about traders unique experiences with particular brokers.
The following links will also give you some background information on U.S. FCMs (Futures Commission Merchants).
1. Word of Mouth
- What do other traders say about the broker?
- What is their customer service/dealing desk like?
2. Customer Protection
- Is the broker regulated?
- What regulatory organisation are they registered with and what protections does this afford you?
- Are client funds insured against fraud?
- Are client funds insured against bankruptcy?
- What business model do they operate? i.e. Are they a Market Maker [?], ECN [?] or no-dealing desk broker [?]?
- If they are an no-dealing desk broker or ECN, do the counterparties to your trade see your resting orders? i.e. Stop-losses and limit orders
- How fast is their order execution?
- Are orders manually or automatically executed? [?]
- What is the maximum trade size before you have to request a quote?
- Are all clients trades offset?
4. Spread [?]
- How tight is the spread?
- Is it fixed or variable?
5. Slippage [?]
- How much slippage can be expected in normal and fast moving markets?
6. Margin [?]
- What is the margin requirement? e.g. 0.25% (max 400:1 leverage [?]), 0.5% (max 200:1 leverage), 1% (max 100:1 leverage), 2% (max 50:1 leverage), etc.
- Does it change for different currency pairs or days of the week?
- Will the broker increase it in volatile market conditions?
- At what point will the broker issue a margin call?
- Is it the same for standard and mini accounts? [?]
- Do they charge commissions? (Most market makers commissions are built into the spread, whereas ECN's will charge a small fee)
8. Rollover Policy [?]
- Is there a minimum margin requirement in order to earn rollover interest?
- What are the swap rates for going long or short in a particular currency pair?
- Are there any other requirements or conditions for earning rollover interest?
9. Trading Platform
- How reliable is it during fast moving markets and news announcements?
- How many different currency pairs can you trade?
- Do they offer an Application Programming Interface (API) to allow you to automate your trading system?
- Does it offer any other special features? (e.g. One click dealing, trading from the chart, trailing stops, mobile trading etc.)
10. Trading Account
- What is the minimum balance required to open an account?
- What is the minimum trade size? e.g. 1 unit, 1,000 units, 10,000 units or 100,000 units?
- Can you adjust the standard lot size traded? [?]
- Can you earn interest on the unused margin balance in your account?
Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Due to the high degree of leverage used in forex trading, investors should only use risk capital because there is always the risk of substantial loss. Forex trading may not be appropriate for all investors. Account access, trade executions and system response may be adversely affected by market conditions, quote delays, system performance and other factors.