Unlike stock and futures brokers, not all Forex brokers are regulated. It is very important to open an account with a regulated broker or bank that is a registered member of a regulating body. Since there is no central market, there is no global regulatory agency responsible for monitoring the activity of the currency markets. Therefore, regulation is left to each country.

In the United States the Federal Reserve Bank monitors the banking system and the Commodity Futures Trading Commission (CFTC) has jurisdiction over all Futures and Forex activity. When trading in the foreign exchange markets, individuals should only trade with a CFTC registered entity that is also a member of the National Futures Association (NFA) and is regulated by the CFTC. For non- US broker/ bank entities, be sure that the broker or bank is registered with that country’s appropriate regulatory bodies.

In addition to working with a regulated broker, you want a broker that has low spreads. These spreads are calculated in pips, which is the difference between the price at which a currency can be bought and the price at which it can be sold at any given point in time. This is how the forex brokers or banks make their money since they don’t charge commissions. So, obviously, lower spreads will save you more money.

Trading tools are also very important when choosing a Forex broker. Specifically, you want a broker that will give you good charting and trading software that has the ability to plot the indicators that your trading method uses. This brings up an important point. You should never go looking for charting software first and then try to use or develop a trading method.

Instead, you should first get educated on a good trading method (or develop your own) and then find charting software that will let you implement this method.

I’ve seen too many traders stubbornly use inadequate charting software just because their broker gave it to them. Don’t make this mistake. Thankfully, unlike stock brokers, many forex brokers do provide you with very adequate charting and trading software, all bundled together. Other aspects to watch for when selecting a broker are the leverage levels and account types (standard and mini accounts) offered. Most brokers offer at least 100:1 leverage which is more than adequate for most traders. Some brokers also offer greater leverage, up to 400:1. This type of leverage is completely unnecessary as the risk reward ratio can quickly go against you if you use excessive leverage. (I’ll cover this in more detail later in the report in the question about risk management.) Depending on your account size, you will want to be sure the broker you choose offers the appropriate account types. Standard and mini accounts are typical. The standard account typically requires minimum initial capital of $2,000 or more, while the mini account typically requires $300 or more. Leverage of 100:1 should be available for either a standard or a mini account.