Forex Broker Guide: Broker Basics
Forex Broker Guide: Platforms And Account Details
A reputable forex broker should have rules, programs or services to protect the integrity of the market. They should protect the public from fraud, manipulation and abusive practices related to the sale of futures and options and to encourage open, competitive and stable futures and options markets. In the U.S., brokers would be registered with the U.S. Commodity Futures Trading Commission (CFTC) as a Futures Commission Merchant and Retail Foreign Exchange Dealer, and will be a member of the National Futures Association (NFA.)
A professional looking website does not imply or guarantee that a broker is reputable; reputable brokers will state these affiliations on their websites, typically in the "About Us" section and on each web page. Each country outside of the U.S. has its own regulatory body that traders can research. (For related reading, see Is Your Forex Broker A Scam?)
In the Internet age, there may not be any reason to visit a brick and mortar office, but the location of a forex broker remains a consideration primarily because of regulation and potential educational opportunities. A broker that is located in a country that provides little regulation may be a riskier place to open an account than one located where regulatory compliance and enforcement have a strong presence. A trader who deals with a broker that is regulated has some recourse in the event that there is a problem with the broker: the trader can contact the appropriate authorities to file a complaint and seek a resolution. In addition, the location of some brokers (such as those with regional or local offices) may allow traders to attend in-person training seminars or workshops that can assist with learning trading concepts. (For related reading, see The Pros And Cons Of Trading Forex In An Overseas Account.)
When a broker became established may help confirm the professionalism and durability of the broker. There have been instances where fly-by-night brokers have either acted in a fraudulent manner or simply had poor business practices, and ended up closing shop after a short stint. While all brokers have to start out as new companies, those who have been around for a few years or longer gain credibility since a fraudulent or badly managed firm is unlikely to remain in business.
For U.S. Clients, the Broker should accept U.S. Clients
In response to increased regulation brought on by the Dodd-Frank Act, many International forex brokers have stopped offering services to U.S. clients. Foreign affiliates of U.S.-based brokers can service U.S. retail customers only if they are registered with the CFTC and comply with the new CFTC leverage rules. Currently, the maximum leverage for U.S. retail clients is 50:1 for major currencies, and 20:1 for minors. Restricted leverage ratios are intended to protect both firms and clients from unnecessarily large losses resulting from over-leveraged positions. Due to concerns over possible legal issues, many brokers have opted to simply drop out of the U.S. retail market.