By now you should have realized that there are many vital concepts that you should understand before going live. Any attempt to trade forex without properly understanding these concepts is like a big leap in the dark. If you are new to the forex market, trading with a good forex broker can be the difference between winning and losing. Therefore at the outset you should know which factors are important to look at when tracking down the best forex brokers. You can then ultimately select one of them to open a live account.

From the previous posts on this blog we have emphasized on many concepts which are forex margin, forex leverage, ecn forex and forex spread. In choosing your forex brokers you should make it a priority to consider each of these factors. For example you should ask yourself what is the forex margin percentage offered?  Do I really need significantly high leverage?  In August 2010 the CFTC which regulates retail forex in the US has decided to reduce leverage to 50:1 for major currency pairs. This means that as from October 2010 the margin available with US forex brokers will be 2%.

In that respect many forex brokers reviews sites now recommend not to open an account with a U.S. based forex broker regulated by the CFTC, due to excessive and over-bearing regulation imposed on retail forex brokers including reduced leverage levels which affects the way you trade. If you heed to their recommendation you will want to look for forex brokers operating in other jurisdictions such as the United Kingdom. It will also be appropriate for you to look at other regulations which apply to your account. For example, are client funds protected by fraud and bankruptcy?

The next question that you will need to ask is: what business model does the forex broker operate? Is the forex broker a market maker or ecn? This is crucial because a forex broker who operates a dealing desk is potentially dangerous. On the other hand, what if ECNs charge a commission when you open and close your positions?  Are you willing to accept that?

The next thing that you will need to consider is whether the forex spread offered by the forex brokers are competitive. Usually ECN brokers offer the best competitive spreads because they have access to multiple liquidity providers. But for any type of brokers you will need to find whether the spreads are fixed or variable? If they are variable, how wide do they get during the release of important economic reports such as the Non Farm Payroll Report. You should also look at slippage which occurs when your order is filled at a different price than what you are expecting. How much slippage can be expected in normal and fast moving markets?

The above are key factors which you should look at when considering forex brokers.  Furthermore you will need to ask the following questions: What are the trading platforms offered by the forex brokers? How many different currency pairs can you trade?  Do they offer micro, mini or standard accounts? This last question is particularly important because we always strongly recommend new traders to open a micro account before moving on to a mini or standard account. 

In this way you will experience live trading while risking the least amount of money. Also you will be able to test whether your forex broker is up to the standard. For example, you might be able to know what slippage to expect with forex broker X. For traders who want a forex robot to trade on their behalf they will need to ask an additional question: Does the forex broker offer an application programming interface?