If you're thinking about trading on the foreign currency exchange market, or forex, and the song "Money" by Pink Floyd with its "cha-ching" sound is playing in your head, you might want to read this article first. With so many forex brokers out there willing to take your money to help you make your first trade, it can be hard to find one who will help your profits grow and not just take your money. So, as part of your forex training, here are a few tips that will help you choose a broker you can trust and not end up with a "bucket shop."
"There's no danger!" Watch out for a company that says trading on the commodities market has little or no risk. Any honest broker will tell you that there is ALWAYS risk. You can reduce this risk with stop losses, good trading techniques, and equity management, but there is always a risk when you trade. If something sounds too good to be true, it probably is!
2: "It's not the main focus." Find out where the company came from. Be wary of a company that won't tell you anything about its history or about what other customers have said about it. You might also want to check with the National Futures Association to see if the company in question has ever been fined or accused of misleading business practises. The Chicago Board of Trade is another great place to get information. You can check there to see if the business is registered as a "futures commission merchant" (or FCM for short). Companies that are registered with these two groups are more likely to be real than companies that aren't. You can also find a lot of information that can help you learn more about forex through these two organisations.
"There are millions for the taking!" If a company tells you that you can make a lot of money in a short amount of time, run away! To be a good forex trader, you have to put in time, work hard, and study A LOT. There is no magic bullet that will make you thousands of dollars in a week (unless you're the scammer!).
"Be careful when you send money!" Be careful if you send money over the Internet. Make sure the organisation you're sending money to has passed your background check and is registered to do business in a country with strong legal protections in case something goes wrong. Be very careful about sending money to countries with a bad reputation for bribery and corruption.
"Margins, Margin!" When trading on the margin, be careful. Depending on the broker, you might have to pay back more money than you put in. Before you trade margins, you should learn how margins work and how your broker handles them as a key part of your forex training.
"What bank?" Be wary of a company that says you can trust them because they trade on the "interbank market." So far, there aren't many rules about trading on the interbank market, and it's mostly done by central banks, multinational corporations, and other big players. In a possible scam, a shady company that trades in currencies might say that they have good prices because they deal with the "interbank market." Most of the time, only very large businesses and government agencies deal with the interbank. It is not regulated and is made up of a loose group of large businesses and government agencies.
Now that you've learned a bit about forex, there are a few other things you can do to judge a broker. They are websites that compare brokerages, forex training courses, word of mouth, and checking in with an experienced retail forex trader who has good trading strategies and works with his or her broker often. All of these things can help you choose a good forex broker, which will help you keep that great song "Money" in your head.
