The Consequences of Choosing the Wrong Forex Broker

Most people are eager to open an account with a forex broker as soon as they learn the basics of forex trading. However this is not a decision to be taken lightly. Even if you only intend trading with small stakes, you should still spend a significant amount of time choosing the right forex broker.

The wrong choice of forex broker could end up costing you money. This is because for a start not all brokers are fully regulated. Therefore what this means is that if you deposit money, you may not necessarily see this money again, regardless of whether you generate any profits or not. This is pretty rare but can happen if you go with an unregulated company, particularly one that's located in an offshore location.

Another problem you may face is regarding spreads. Ideally you want to choose a broker that offers spreads of no more than 2 or 3 points on the major currency pairs, and certainly no more than 4. If you are a long-term trader then these larger spreads won't affect your profits too much, but if you are a day trader you will find that these large spreads can really eat into your profits.

For instance, let me demonstrate this point by comparing 2 different brokers. Company A has spreads of 2 points and Company B has spreads of 4 points for a particular pair. Now if you were to have 5 winning trades of 10 points each (before accounting for the spreads) in a given day, you would have made 40 points profit trading with Company A and just 30 points with Company B.

So as you can see this is a big difference, and in the long run these greater spreads can have a devastating impact on your overall profits.

Finally, another consequence of choosing the wrong broker is that you may quickly discover that they do not offer some of the features that you require to be a successful trader. For instance, you may sign up to a broker only to find that they offer only the most basic of charting software or that they are very unreliable around busy periods of the day, for example.

So the point is that you should really take your time researching the various different forex brokers before you commit yourself to one in particular. If you don't you may find yourself wanting to switch to another broker and having to start all over again.

Forex Brokers
A complete list of online forex brokers.