#1. Registered With a Reputable Financial Regulator
Forex brokers operate online across the globe. To be trustworthy they need to be overseen by a major financial regulator having rigorous compliance on trading practices and client protection.
The financial regulators can be the U.K.’s Financial Conduct Authority (FCA), Cyprus’ Securities and Exchange Commission (CySEC), or any other country-specific regulator with strict regulations.
#2. Accepts Affordable Minimum Deposit
You need to open a margin account for forex trading.
You need to pay a minimum deposit amount while opening a margin account. The deposit amount ranges from $5 to $200 and above which varies from broker to broker.
All you need is to find a forex broker that asks for a reasonable minimum initial deposit amount corresponding to the services provided.
#3. Trading Assets
Forex brokers let you trade in different currency pairs, currency derivatives (like options trading, swaps and forward), global stock, indexes, commodities and crypto. All forex brokers do not provide trading in all the currency pairs or assets.
You will frequently come to hear of Contracts For Difference (CFD) in forex broking. CFDs are over the counter (OTC) derivative products, where you trade on the price movement (difference) of financial assets without actually owning them.
The CFD contracts can be on Indices Futures, Commodity Futures, Stocks and Exchange Traded Funds (ETFs).
Before you select a forex broker, you need to check your asset preferences for trading.
Based on your trading requirements pick a broker that provides all the assets you want to trade-in.
#4. Leverage Available
Leverage or margins help you trade a larger volume on a fraction of your money. For example, if you have a leverage of 1:100 means that with $1000 in your account you can enter a trade worth $100,000.
There are forex brokers offering leverage up to 1:1000 levels.
Leverage is like a double edge sword. They can help you earn plenty or lose huge amounts if the price movement is adverse.
Prudent practice suggests that you should always use appropriate leverage in line with your trading strategy and risk capacity.
#5. Trading Platform
MetaTrader 4 and 5 trading platforms are the popular global forex trading platforms. Both platforms support automated trading.
Other commonly used forex trading platforms are cTrader and Ninja Trader.
Your forex broker should at least provide MetaTrader 4/5 in addition to their own proprietary trading platform.
#6. Negative Balance Protection
Forex trades are highly leveraged. Any adverse economic, political news and events have the potential to create high volatility. The sudden adverse movements can result in losses more than your capital/ account deposits.
This is where your account turns negative (i.e. situations where trade losses are more than the deposits in the account).
Brokers who offer negative balance protection save you from any debt payments. Under negative balance protection, the losses are restricted up to the initial deposit.
Traders can also prevent negative balance situations by
- Placing stop-loss order with each trade
- Using leverage carefully
- Keeping the trading volumes under check
Conclusion
You can make forex trading a part of your trading portfolio. You can read my guide on how to start stock intraday trading, and how to start options trading in India to diversify your portfolio.
