Choosing a good Forex broker can be as complicated as Forex trading itself. For that reason, investors should do their homework as diligently as they would for a trade. Here are some tips to keep in mind to make your research and choice easier.

In the U.S., any worthwhile Forex broker will be registered as a Futures Commercial Merchant (FCM) with the CFTC (Commodities Futures Trading Commission). Finding one doesn’t end the need for research, it’s just the bare minimum you should require.

Since Forex trades are highly leveraged (in effect, the broker ‘lends’ an investor up to 99% of the money required to make a trade), the broker you select should be associated with a firm with deep pockets.

Forex accounts are not FDIC (Federal Deposit Insurance Corporation) insured, so you can not expect the U.S. government, or anyone else, to bail out the brokerage firm or reimburse you if the market turns sharply downward. Large institutions, with ample capital to withstand downturns in the market, and rapid drains on their deposits if clients withdraw en masse, are crucial to your financial peace of mind.

Beyond those rock bottom basics there are many options.

Since the Forex markets trade 24 hours per day all around the world, you may want to trade after normal business hours in your home country. Whether your broker resides in the same country (usually, for language and legal reasons) or not, you want one who will pick up the phone when you call.

Forex trading has moved into the Internet age, but it is still very much a phone-based business. Getting a broker on the phone at any time of the day or night can mean the difference between profit and loss. Sometimes, big profit or loss.

Since Forex brokers don’t work off standard commissions the way stock or bond brokers do, you need to research the firm’s spreads. Forex trading is always done in currency pairs. A spread is the difference between the bid and ask price - what the broker pays to buy versus the amount they sell a currency for.

Some brokers will offer fixed spreads on all trades, which has the advantage of predictability. It’s a kind of fixed ‘commission’. But that may or may not suit your trading style or your budget, since they tend to be larger than variable spreads.

Any broker will offer a standard account to a qualified client. Typically you have to fill out an application form that states you have adequate capital and understand the risks involved in Forex trading. Standard accounts trade currency in standard lots of 100,000 units. You can’t buy 100 euros for $150, you have to buy 100,000 euros.

Since that’s a very large investment for the average trader, brokers offer leverage. Professional traders use leverage as well, of course. In other words you put in, say 1% of the total, the broker puts up the rest. That has huge profit (or loss) potential, but it entails significant risk. So be aware of a broker’s margin call policy.

Many brokers today will offer some form of ‘mini’ account. Instead of trading in standard lots, they trade in smaller units, such as 10,000. This lowers the investment required from, say $2,500 to only $250. Most clients can easily meet that minimum.

But that lower leverage requirement limits the potential for profits. That may or may not suit your investment needs. Only you can decide.

You’ll want a broker with software that provides you with the research and other trading tools you will need to be effective in Forex trading. Forex investing is much more complex and volatile than even stock or bond trading, which is already not simple when done well.

Be sure to use the trial accounts offered and make several ‘fake’ trades in order to test out the software and research available. You need real-time prices - Forex moves very fast - and lots of technical and fundamental analysis information at your fingertips.

There are websites and forums where specific brokers are discussed, but take what’s said there with a grain of salt. Just as with complaints about vendors on eBay or Amazon and other large Internet trading arenas, a few bad remarks shouldn’t ruin the reputation of honorable brokers.

Beyond all that, the factors become a little more difficult to judge. Above everything, you want to feel you trust the person on the other end of the line. They are not there to be your friend or listen to personal complaints or trade tips. But you should get the sense that they are competent, professional and ethical.

Take your time to research. After all, your decision will affect ALL your trades.

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Prices in Forex markets are the most volatile of any trading instrument. They change farther and faster (on average) than stocks and bonds, though commodities can be pretty roller coaster, too. This presents non-professional investors with a dilemma: either sit by a computer monitor all day, looking for price movements in real time or potentially lose a whole lot of money. But there’s a way out of that dilemma. Use signal services.

Forex signals are buy and sell indicators based on technical analysis. Technical analysis uses historical price and volume data to statistically analyze trends. The goal is to establish, with a stated probability, the likelihood of future price movements.

A signal could be as simple as ‘Buy euros now at 1.1901′. Those signals are delivered in any number of ways, by email, SMS text message to a cell phone, IM message and so on. Some are no more than flashing text and/or icons on trading software. The software contains in-built algorithms that use the methods of technical analysis, combines it with current market data and generates a signal.

For example, one commonly used technical indicator is something called MACD (Moving Average Convergence/Divergence). Without going into details here, it uses the moving average - the change in an average price over time. A signal can be generated when the value of MACD crosses above (or below) a certain threshold. Buy when it moves above the line, sell when it falls below.

Some signal services allow clients to automate the process of Forex trading even further. You can leave standing orders that when a certain signal is generated, carry out the recommendation. You get an email recommending ‘Buy euros now at 1.1901′ and the broker automatically enters an order to do just that.

As with any trading tool, it has to be used intelligently in order to avoid disasters. Entirely automating your buys and sells can amount to automatically losing money. Using a signal service can make your life easier, but never abandon your investments entirely to an automated service.

If you plan to do that, you may as well simply turn your investments over to a broker with the instruction: ‘Maximize my returns, but keep the risk down to a reasonable level’. Sensible, but not helpful if you want to control your destiny.

Signal services are definitely useful, however. They can relieve investors of the need to continually monitor prices. They can simplify the sometimes bewildering complexity of charts. They can help the investor make better decisions about when to buy or sell and at what price.

All that comes at a price, of course. Signal services range from $50-$250 per month, though some are cheaper and a few are more. Only the individual investor can decide whether the cost is justified. As with any trading service, if you make more than it costs than you would without it, that’s profitable.

But, buyer beware. There are dozens of firms that will be happy to take your money. Whether their analysis, and therefore, their signals, are worth anything is a learning experience all its own.

At minimum, investors should use order types that help control risk. Stop-loss orders, limit orders and other common types are an essential means of limiting losses and timing buy and sell orders. That technique, commonly employed in stock trading, is even more critical in the volatile world of Forex.

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The Foreign Exchange Market, which is perhaps better known as the Forex, is a global market established for the purchase and sale of currencies. It effectively operates around the clock and daily transactions run into trillions of dollars, which in itself sets it apart from markets such as the US Treasury Bond market which sees daily transactions in the region of three hundred billion dollars and the combined American stock markets at about one hundred billion dollars a day.

The Forex as we know it today was created in 1971 when fixed currency exchanges were abolished and currencies were, and still are, valued at ‘floating’ rates which are determined by the law of supply and demand. This change, combined with technological advances during the 1980s, created substantial growth in the Forex market so that today it is the world’s largest financial market.

The Forex comprises a diverse group of some 5,000 trading institutions including international banks, central government banks, commercial companies and brokers. Unlike most other markets, there is no centralized trading location for the Forex and trading takes place through a number of centers located in cities including New York, London, Paris, Frankfurt, Hong Kong, Singapore and Tokyo, to name just a few, with trading being conducted by telephone and increasingly over the Internet. Principally established to facilitate business trade across international border, today the majority of trading is carried out by currency traders who are looking to profit from small movements in the market.

Thanks to recent changes in the market’s regulations small investors can now participate in the market and the previously large transaction sizes have been reduced substantially and many trading restrictions either removed or relaxed. The advent of the Internet has also allowed large interbank units to be broken down into smaller units and standard trading lots of $100,000 are now accessible to the smaller investor who is permitted to trade on leverage of up to 100:1, which means that a $100,000 trade can be controlled with as little as $1,000.

There are many advantages to trading in the Forex including its accessibility, liquidity, the open nature of the market and its commission structure.

Because the market is effectively open 24 hours a day 7 days a weeks and operates largely over the Internet, traders can now work from home and set their own trading hours. And, because the market is so liquid there is never any problem in trading as international banks are always willing to set bid and ask offers and there are always buyers and sellers for any currency. Just as important, currency prices tend to move in response to changes occurring within national economies and, as news of such changes is readily available to everyone trading in currencies, the market does not suffer from the problem of ‘insider dealing’.

Perhaps one of the greatest advantages of the Forex lies in the cost of trading. Unlike other markets there are no commissions payable in currency trading and brokers earn their money from the ’spread’, or the difference between the buying and selling price of a currency.

But perhaps an even greater advantage lies in the way in which the market operates. Currencies are always traded in pairs with one currency being bought and the other being sold. For example, you may be holding US dollars and sell these in order to buy Japanese yen. Currencies are constantly moving against one another and so, whatever currency you are holding, you will almost always find that there are other currencies moving against your currency to your advantage and offering you the opportunity to profit from that movement. The market also follows well established trends which make it relatively easy to read the future direction of current movements.

The Forex market is one of the world’s safest markets for traders and the entry requirements have now been set low enough for even the small investor to try his hand. With a good training course behind you and a currency exchange calculator at your side Forex trading will prove to be a very enjoyable and lucrative endeavor.