When you start looking for a company to open an account with, you’ll find there are hundreds of websites promising quick riches. Most will promise you commission-free trades, but watch out for the hidden costs and those that are not so hidden.
Remember that the way most Forex broker or dealer make money is based on the spread between the bid and ask price. Always look for tight spreads to save money.
But more importantly, you need to find an established and reputable dealer. Forex brokers have relationships with large banks or financial institutions because of the large sums of capital that are involved.
Your best bet is to work with a Forex dealer that has Futures Commission Merchant (FCM) status and can cut the middleman out of the equation. Dealers can save you fees that you may pay with a Forex broker.
If you do decide to work with a Forex broker, be sure you find one that is affiliated with an FCM. An FCM can handle futures contract orders and can extend credit to customers. If based in the United States, your Forex broker should also be registered with the Commodity Futures Trading Commission (CFTC) and can be a member of the Natioanl Futures Association (NFA).
In rare cases, there are some Forex brokers that are not regulated at all. Stay away from them. Any person can advertise himself as a Forex broker without becoming registered with the regulatory agencies, so do your homework. Make sure that your Forex broker has gone through the hoops to become registered. You can find out very quickly by using the National Futures Association’s Background Affiliation Status Information Center at www.nfa.futures.org/basicnet.
Remember, Forex dealers are not regulated in the same way. Only regulated entities, such as banks, insurance companies, broker dealers, or futures commission merchants that are affiliates of regulated entities can handle Forex trades for retail customers. The company you trade with should be a bank, a broker dealer (registered with the SEC), or an FCM (registered with the CFTC).
On the NFA site, review the basic broker/firm information section for member companies. You can find out information about the firm’s registration status and research whether the Forex broker or firm has been disciplined. You can check out the financial information about all registered Forex dealers at the CFTC website (www.cftc.gov).
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