From the April 2013 issue of Futures Magazine • Subscribe!

7 steps for test-driving forex brokers

Take her for a test drive.

Many brokers now offer the option of checking out their system on a demo account using fake funds, or paper trading. This can be an invaluable part of your decision process, but only if the demo account is an accurate mirror image of what a trader is going to get in the tradable account.

Although a demo account can’t replicate the full emotional experience of trading, it gives you an opportunity to learn the broker’s system before any money is on the line. This includes things such as placing market orders and understanding the charting software that is provided. 

Even though it can’t replicate everything a trader experiences, Popplewell says taking the product for a test drive through the demo account is very worthwhile. “I’d certainly want to test drive any product I’d want to take home with me,” he says. 

Sign, drive and maintenance.

Finally, you’ve found a broker that meets all of your criteria. It is registered, has a regulatory history you are comfortable with and offers everything that is important to you in a broker. Although you feel comfortable placing your money with them now, that doesn’t mean your due diligence is finished. As we’ve seen, the situation at a firm can change drastically in just a short time. As such, you need to continue to monitor any disciplinary actions taken against your broker and its capitalization levels. Any sudden changes may be an early warning sign that it is time to pull your funds.

Although it is becoming better regulated, the spot forex market still is experiencing growing pains as retail traders continue to flock to it. As such, it is all the more important that traders take the time to know their broker. A little time spent performing due diligence before opening an account can make all the difference should a problem arise in the future. Keep in mind that these steps should be applied to almost any broker in any field that you are contemplating trading, such as stocks, futures or options. “Buyer beware” has never been so important as today. An educated trader, both in markets and execution, typically is the most successful.

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