I’ve received a letter from a reader asking me to help him chose between two forex brokers. Before getting into the details, I asked him if he had tested those brokers with a forex demo account. I was surprised that he didn’t even consider it. This is very important: you should always test a broker with a demo account.
About two months ago, I wrote about this issue in a post titled Forex Demo Account – A Must for Every Broker.
A forex demo account enables you to get to know the broker’s software before putting real money in. Who would want to lose money just because he missed an important button? Who would want to throw cash stupidly?
My opinion regarding this method of testing hasn’t changed. It even got stronger.
Three weeks ago, new regulations have been imposed on forex traders that work with American brokers. With the new First In First Out (FIFO) rules by the NFA, forex software now includes new restraints that are supposed to prevent the possibility of hedging.
Some brokers have fully adapted to the new rules, some promised that they bypassed them elegantly while others just send you to their foreign subsidiaries. These new NFA regulations are confusing. Here’s a post about dos and don’ts regarding the new NFA rules.
Forex trading takes time to learn, and is complicated enough before these new rules. When adding this new level of complexity (at least for American brokers), it’s very very important to take the time and test your new broker before putting in real money.
- A special page concentrating all the articles regarding a forex demo account.
- If you wish to go straight to the first article about it, here’s why a forex demo account is good for technical analysis.