Breaking news: online market makers breathe fresh air into the smoke-filled back rooms of forex trading…billions of dollars enter the market each day…everybody's getting rich quick (or so they claim).

The good news is that there are more ways into forex than ever before, and it costs much less to trade.

The bad news is that it's as hard as ever to know whom to trust.

How do you find out what you need to know about a market maker?

1. From what the market maker tells you

   In the old days you placed your order and took your chances. Everything happened behind the scenes—no learning curve, no second chances.

   Online market makers today make trading a little more obvious. They entice traders with demo accounts and trading games. Sure, they're a come-on, but there are some good ones—and they're not just for novices. The best ones are a risk-free way to learn the ropes or test a trading strategy before you commit.

   But take care:

   • Does the demo platform offer the same spreads and prices as the real platform? If not, keep shopping.
   • Is the demo a “limited-time offer”? Many are, so they won't be useful for serious traders who like to test as they go.
   • No matter how realistic the demo, it's still make-believe. The stakes suddenly change when you're investing real money.

2. From what your fellow traders have to say

   As an asset to trade, currency is hot. And as more investors enter the arena the information industry is not far behind.

   You want a sure-thing trading strategy? The Internet is happy to oblige. But keep one hand on your wallet at all times.

   As expected, the big banks and institutional traders have kept quiet. Maybe they've owned all the important information for so long they're not afraid that 10 million traders might actually compare notes.

   Meanwhile, the bulletin boards and chat rooms and trader forums are all abuzz. No surprise: most of the talk is self-congratulation from sudden experts. But there's also some good information—and, for the first time—traders have access to other people's experience.

   Be sure of two things:

   • Market makers are listening to what traders say. They will shape their trading practices around serious demands that rise above the noise. Why?
   • Because in a newly public marketplace the individual trader's experience finally matters. When an active trader who does a billion a year complains online about execution or inflated spreads, his market maker will care. Especially when that trader can click over to a more competitive, more responsive market maker for about $25.

Next: The right to full disclosure
Back: The right to understand cost
Return to: Table of Contents