Choosing a forex broker

The forex market is the largest market in the world, 1.9 trillion traded daily and unregulated – this last adjective is an often repeated warning, but what does it mean for you, the forex trader? When a forex broker offers guarantees on execution and account safety, can they really back this up?

The Commodity Futures Modernization Act, introduced in 2000 did not extend regulation of the CFTC to cover the spot forex market. However, The NFA offers a free database called BASIC which provides registration and membership information and shows regulatory actions brought against CFTC registrants by the CFTC, NFA or exchanges.

Here are two measures you can use to check into the background of your forex broker:

1. Check that your broker is a registered futures commission merchant. Get the brokers NFA ID and look them up at www.nfa.futures.org/basicnet/ Beware of affiliates.

2. Go to the CFTC website and make sure that the registered FCM has substantial assets. The NFA required minimum is 250,000. However, many experts see this as a modest requirement and would like to see assets of at least 10 million.

To confirm the validity of your forex brokers price feed, cross check the trading platform feeds against eSignal and Reuters.

Slippage, (when you get a worse fill than the price you requested), and requotes (when you enter or exit the market and a different price comes up, leaving you seconds to leave the worse bid or offer) should be rare and only in fast markets. Slippage is already built into the spread

‘FDIC insured’ and ‘segregated accounts’ does not necessarily guarantee the safety of your account. Your funds would probably not receive priority in a bankruptcy as demonstrated by the Refco scandal.