Choosing a good Forex broker is the first step in successfully trading the foreign currency market. Obviously with more and more online traders getting in the Forex market, the choice of online brokers has grown exponentially in the past few years and is now almost overwhelming.

Considering that you’ll trust them with your money and they’ll be executing your trades, it’s important to take time to do your research. Here’s what you should be looking for:

In Part I
1- Account Type Available
2- Spreads / Commissions / Fees
3- Margin / Leverage
4- Execution
In Part II
5- Rollover Policy
6- Trading Platform
7- Reputation
8- Support

Account Types Available.

First of all, if you are new to Forex or if you intend to trade with a small amount of capital, I highly suggest that you start by looking at brokers who offer mini accounts. With a mini account, you have pretty much all the same advantages as a full account but can trade lots which are 10 times smaller. Very few brokers offer the possibility to trade an even smaller amount than a mini account, all the way down to units of $1. A mini account will give you the opportunity to sharpen your skills while limiting your risk. If you are just starting in Forex, I suggest that you look for a broker that also offers a demo account for a period of at least 30 days. This way you can learn the basics without any risk. Here are some questions to ask or look for:

1- Can you open a demo account?
2- Can you trade mini lots?
3- Can you easily change to a standard account if desired in the future?
4- What is the minimum deposit and account balance?

Spreads / Commissions / Fees

Most Forex brokers don’t charge commissions (always make sure), but will charge what is called a spread. In currency trading, the smallest possible movement in either direction is called a pip. Forex brokers will therefore add a few extra pips on the buy side of any transaction as their commission. This will have an important impact on your return, because obviously you need to have the market go in your predicted direction by the spread amount just to break even. Before I get into more detail about the spread, make sure you also look at the other fees or commission that the Broker might be charging. For example, do they charge any fees for deposit and/or withdrawal? Do they charge a fees for their online trading platform or for placing a trade by phone? Any other fees?

Most brokers will have a fixed spread which will be posted on a page of their website. A fixed spread will guarantee you the same commission in any market condition, at any time of day or night. Some Forex broker might offer variable spread which will be most likely lower than fixed spread under normal market condition but things heat up and the market become more volatile (usually when important economic news are release) the spread will become wider. I personally prefer the fixed spread as I will sometime have to enter or exit a trade in a busier period, and don’t want to get caught with higher spread which will turn my trade into a less favorable one. But depending on your strategy, variable could be better for you.

The spread will be different depending on which currency you want to trade, so it’s important to look at the one you intend on trading the most to start with but obviously also plan ahead. Make sure you verify if their spread is different depending if you choose a mini account or a normal account as they might also be different.
Obviously, spread is important and will directly affect your profit potential. However be aware that some Forex Brokers will offer low spread knowing that most traders will look for this first and foremost and won’t notice other trading condition which might be less advantageous and end up costing you more at the end as well.
Here are some questions to look ask or look for concerning the spread:
1- Is there any other commissions or fees apart from the spread?
2- Are the spread Fix or Variable?
3- Are the spread for Mini and Normal account the same?
4- What are the spread on the currency pairs I wish to trade?

Margin / Leverage

Because moves in the Forex market are counted in pips, and that 1 pip is generally the equivalent of 1/100th of a cent, leverage is essential to make any profits. Therefore you’ll find that margin of 100:1 will be commonly offered. This means that you can invest by borrowing up to 100 times more than you account balance. But obviously with leverage you will also be exposed to more risk. Actually, one of the most common reasons for beginners to fail in this market is losing their starting account by taking too much at once. So a higher leverage isn’t necessarily better and not really required. Most brokers should offer an amount of leverage sufficient for your needs. The most important thing here will be to make sure you check their margin requirement (different margin on the weekend), how their margin call work, if it’s different depending on the account type or currency traded.

Here are some questions to look ask or look for concerning the spread:
1- What leverage do they offer?
2- Is the margin the same for any account type?
3- What is the margin requirement?
4- How is it calculated?
5- Does it change depending on the currency pairs traded?
6- Is it the same at any time of the day or on week-end?

Execution

One of the most important thing to consider for successful trading is the how fast and accurate your orders will be executed by your Forex broker. Especially in time of higher volatility, will you get your desired price with minimum slippage? Under volatile condition, some broker will re-quote you with a new price which you’ll have to accept or decline (but then price might have moved again), some will just reject your order (you’ll have to do another one) and others will just execute your order at the new current price. Considering that many times per month, especially during major news release, a currency pair can fluctuate as much as 100 pips in a matter of practically seconds, this could lead to a disastrous result for your trade. I can’t stress enough about the importance of this. Yes, some places might offer better spread, but in reality, because of slippage or slow execution, you might end up paying way more than you expected.
Here are some questions to look ask or look for concerning the spread:
1- How fast will the order be executed?
2- Is there any execution guarantees for Limit and Stop orders?
3- What type of execution can you expect under volatile conditions?

Part II to follow this week…