Tight Spreads: Look for competitive spreads. This is the difference between the bid and offer and is measured in pips. This is what it will costs to enter a trade, since it is not possible to buy on the bid or sell on the offer in the Forex market.
Forex brokers are usually tied to large banks due to the large amounts of capital required for the leverage that they provide. While the forex market is unregulated, reputable brokers will be registered with the NFA.
Leverage is necessary because the price fluctuations are so small. It reflects the ratio between usable trading capital and the actual capital in your account. Some brokerages offer leverage as high as 250:1 – so in this case the broker is lending you 250 for every 1 dollar in your account.
When signing up for a forex trading account you will be required to sign a margin agreement. This states that due to the fact that you are trading with borrowed funds the brokerage has the right to interfere with your trading to protect its interests.
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