Forex trading is when you exchange one currency for another on the foreign exchange market. This type of trading is becoming more and more popular because it is dynamic and profitable; it isn’t for the inexperienced or faint of heart.
Of course, no investment is without risk, but forex takes the risk to a brand-new level with its high leverage and rapid trading pace. With currency trading, you can lose more than your initial investment in no time. If you look at it from another perspective, you can also profit at the same high speed – which combined with liquidity – acts as a magnet for investors.
The forex market represents every currency across the globe and is the most actively traded, largest, and most liquid (highest liquidity) market in the world. The trading happens 24 hours a day, five days a week.
Where to Start
By now, you probably understand why currency trading is not a game and is not for everyone. To trade forex, you need a broker. Dealing with a trusted, experienced broker is crucial for success in the international currency markets.
As a trader or investor, you may have specific needs related to the tool, platform, or research that should be met. This forms your investment style, which will determine which broker is best for you.
When looking for a forex broker, both beginners and experienced traders generally check for several key features and benefits. You should consider the trading platforms, several foreign currency pairs offered, customer service, leverage maximums, access to demo accounts, trustworthiness, and costs. However, comparing costs can be tricky in forex trading – some brokers charge commissions while others earn their share from the buy-and-sell price differences on forex.
This might seem like a minor detail, but it is just one of the many reasons why selecting the best forex broker is quite complicated. Another idea is to choose a broker among many, which are unregulated or regulated abroad.
Most brokers offer free demo accounts so that you can test the market with virtual cash and not lose money from your pocket. This is an excellent opportunity to dip in a toe before using your own cash.
Now that you are aware of the currency-trading risks, are you still ready to dive in? We created a list of top brokers to help you choose your future trading partner. For this list of best, currency-trading companies, we considered only regulated brokers. At the moment, only three forex-only brokers are operating in the U.S. All of them are represented on this list.
Before we dive into the list of the best forex brokers, we will start by explaining a little bit more about forex for all beginners reading this article.
The Basics of Forex
If you have traveled abroad, you have experienced countries that use a different currency than yours. To be able to buy things and pay for services, you probably found a currency-exchange booth or visited a bank to change your cash into the currency of your destination country.
You have probably seen a list displaying different exchange rates for different pairs of currencies. When exchanging one currency for another for your trip or vacation, you are participating in a fundamental forex trading.
When you are back from your trip, and there’s some money left, you do the exchange again but this time back to your local currency. You will notice that the exchange rate is different.
This fluctuation of exchange rates is what allows investors to make money on the forex market.
The foreign exchange market is a fast-paced and exciting place with a trading volume of more than $5.3 trillion per day on a global scale. It is an enormous market, but if you break it down, you will see that the one you will be trading on is much smaller.
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Who’s Who in Forex Trade
If you are thinking of joining the foreign exchange, it will be useful to know with whom you will be sharing it. The forex market has a wide variety of participants from people to organizations and brokers.
The Main Participants in the Market
The most significant percentage of commercial foreign-exchange transactions happen between various banks. Some of the largest banks trade billions of dollars every day. The trading, of course, takes place on behalf of customers, but the bank does it. Central banks and governments also participate in this market and play a vital role. They can influence the value of their currencies and stabilize the market by using their foreign exchange reserves.
Investment firms can manage large portfolios on behalf of their clients. In this case, the forex is used to buy and sell foreign securities.
On a basic level, people who travel abroad also participate in the foreign exchange market with their vacation budget.
When a company needs to buy or sell services or goods from other countries, they also use the forex market. These transactions are a significant part of the daily forex activity.
A lot of speculative transactions take place in the foreign exchange market. The sole purpose of participating is speculation whether the price of a given currency will go up or down. Large hedge funds control and speculate with billions of dollars every day, so they play a crucial role in this market.
The traders or retail forex traders are people like you. This group of participants is growing every day as more and more people get excited about the opportunities this market brings. The online forex trading platforms make the foreign-exchange market easily accessible from anywhere in the world. To access the markets, traders use the services of forex brokers (also liquidity providers) or banks. It is essential to make a distinction between the two types of forex brokers – brokers and dealers. Brokers are an agent that trades on behalf of a retail trader who is their customer. Dealers, on the other hand, act as the counterparty to trader transactions. They profit from the difference between the buying and selling price called spread.
Benefits of Currency Trading
Forex trading, like any other investment, has its advantages and disadvantages. Let’s look at the benefits of participating in this market.
- You can do it from anywhere in the world. All you need is a reliable internet connection. It gives you the freedom and flexibility to trade from any location.
- If you start comparing the fees for foreign exchange with trading stocks or commodities, you will notice the difference. The forex trading price is much lower.
- In the foreign exchange market, you only focus on a few currency pairs, and you don’t need to worry about a large number of shares or stocks.
- The entry cost is low. If you want to get started on forex, you will around $200 to get you in and trading.
- The trading happens 24/7 from Sunday to Friday so you can trade at any time.
- Forex is volatile, which means traders get the opportunity to profit at the highs and lows of the market.
Are you excited about joining this market? Read on to learn some more things you need to consider before jumping into currency trading.
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Basic Forex Jargon Explained
Before we continue, we would like to introduce some of the common words and phrases used in the forex market. It is imperative to understand the jargon if you want to trade.
So far, we made only a short introduction into the exciting world of currency trading, but to be prepared, there’s more you need to know. There are terms in foreign exchange that will confuse you at first, especially if you are a beginner. But don’t worry; it is normal to come across some words you may not know existed.
It is like speaking a new language – the language of forex. Without being fluent, you won’t be able to function on the market. We compiled a short glossary to help you get started. Feel free to come back and check if there’s anything you don’t get, or you forgot. This article contains some of the terms we explain below, so to be able to read it, you need to understand the jargon.
These are the prices that mark the value of one currency in comparison with another.
The difference between the offer and the bid price or the sell-and-buy quote. The spread varies from broker to broker.
A point (aka pip) is the smallest movement a currency can make.
The bid price is the one the broker or market quotes for buying a given currency pair. The asking price is the selling price of a currency pair.
The leverage is what allows a trader to get to a position in which their account is higher than the total account margin. The leverage can increase both losses and gains.
To keep a position open, you need an amount called margin. There are two main types – used or free margin. The first one is the amount used to keep an open position while the free margin can be used to open a new one. The minimum amount varies from broker to broker, but it could get to 50%.
You may hear or read this term somewhere, so we will explain what it is here. A market maker creates a market by quoting two prices in a specific currency pair. Market makers also set bids and offer prices for a currency pair and accept deals at the offered prices.
Now you are armed with the basic terms you need to know to start looking for a broker. Let’s see which brokers are the best and why you should consider them.
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Best Forex Brokers List
The brokers at the top of our list are the best overall in forex trading. This means they offer a lot of different currency pairs, they have robust trading platforms, and their costs are reasonable. They must provide value for both beginners and advanced traders.
The best forex brokers that made it to the top of our list are OANDA and Forex.com. Each of them offers a variety of currency pairs; the account deposit minimums are low, and the maximum leverage is 50:01, and their costs are reasonable. Both brokers work with fixed commissions and support multiple platforms for trading. Their customer support is available from Sunday to Friday.
Here is a detailed analysis of these two top brokers:
OANDA is a pioneer in the forex industry, especially when it comes to retail; they are one of the first brokers in the market. Regulated by the respective authorities, OANDA is one-of-two, forex-only brokers in the U.S but also serves customers in Canada, Australia, U.K., and Singapore. Founded back in the 1990s, it has been on the retail forex market for quite a while. It has an international customer base which benefits from their excellent services and the latest trading technology.
One of the best things about this broker is that they have a zero-dollars minimum deposit for their accounts. That’s not common within the industry. So, if you have one dollar and you want to start trading, you can do it with OANDA.
One proud thing for which OANDA is famous is the excellent quality of trade execution. They are very transparent about their fees and prices. The broker usually works with traditional spreads or spread-plus commission pricing models.
Focusing a lot of attention on trading platforms and technology, OANDA keeps improving every day. Today, traders can use several options: one of OANDA’s desktop and web-based platforms as well as several mobile versions.
One of the drawbacks of working with OANDA is that their news, research, and educational resources are challenging to find as they are quite scattered. As with any broker of this scale, customer service is not as fast as you would expect.
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Still, OANDA remains the best option for budget forex trading and low-entry costs. It is hard to calculate the costs of forex trading, especially when it comes to low-volume trading. But if you are a beginner, most of the time it saves money to select a broker that charges no commission but works with spreads, as long as their markups are reasonable. With OANDA, you can follow the spreads on their website and compare them. If you go to the page, you will see they have the lowest spreads for the most popular pairs. The company charges a small monthly fee, but it’s not a deal-breaker.
Professional traders may want to stick with a broker that charges commissions. Flat commission pricing is preferred when it comes to higher volumes.
Forex.com is one of the first forex-specific brokers on the market. In the last few years, the company expanded and acquired different investment, financial-instruments businesses. Forex.com is part of the brand portfolio of GAIN Capital, which is a publicly-traded company. With the last acquisitions, GAIN CAPITAL was able to expand its customer base across the globe and is now an industry leader. In terms of customer assets in the U.S., Forex.com comes before their main competitors (OANDA, IC Markets).
In the past few years, Forex.com has been upgrading its trading platform and other systems. As a result, the company now has one of the most technologically advanced platforms in the industry. The team at GAIN Capital consists of excellent market analysts and investors that continuously help and support clients with the latest insights. Their global research team knows what is happening in the world of forex trading at any point in the day.
Although it is a forex-specific broker, as of recently, the company also offers bitcoin trading; traders have access to bonds, indices, and commodities, plus they can start trading CFDs.
Working with Forex.com has its drawbacks, too. For example, they charge a fee for guaranteed stops and their costs of forex trading are not the lowest; rather close to average. They have a lot of educational resources, but they are disorganized, and navigation can be difficult.
Forex.com is popular among beginner traders because of the support they provide. If you are starting your forex journey, you want a broker that offers educational materials and excellent customer support. You can watch webinars, videos, and read all kinds of guides to help you quickly get over the basics and start trading.
Forex.com is also the broker with the highest-quality platforms and advanced tools, so it is an excellent option for professional traders. Although it’s hard to beat Ameritrade with its popular platforms, Forex.com comes a very close second. Their platform is on a professional level and offers advanced technical analysis as well as the option to create your own custom pairs. One drawback is that advanced platforms like the ones at Forex.com and Ameritrade can be overwhelming for beginner traders.
However, with Forex.com, there are several platforms from which to choose, so traders can pick the one with which they feel most comfortable. The traditional platforms like MetaTrader 4 and mobile apps make life easier. You can choose to go for a web-based desktop or mobile platform. The access to technical analytics, chart currencies, and options for developing your trading plan is also easy and quick.
IG has been in the business for more than 40 years and is the biggest CFD trading dealer in the U.K. IG just entered the U.S. market in 2019. With more than 18,500 clients, it is one of the global leaders in the industry. It is also an FTSE 250 company.
IG is not a forex-only company as it offers stocks, commodities, bonds, cryptocurrencies, and a variety of investment instruments. The company works with a wide range of web-based and mobile platforms for trading, which are highly professional and offer a lot of options.
Because of its size, IG can offer some of the most competitive commissions and spreads on the market. Traders who choose to work with IG can select a traditional spread or commission model. Regulated by several different authorities, the company has no minimum account size.
Some of the cons of using IG as a forex broker include the fact that customer support can be rather slow in large organizations like this. If you are a beginner trader, you may find that the educational materials are quite disorganized and it may be challenging to find the information you need. If you need additional resources, you will have to use external applications and sites.
CMC Markets is famous for the competitive spreads they offer that may vary depending on the size of the trade and bet amounts. They give their account holders access to advanced features like stop-lessons and free bank withdrawals which secures the broker a top position in many reviews and comparisons. They have dedicated websites for institutions and professionals, which shows their commitment to offering tailored services and support.
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The considerable product portfolio is a significant advantage as well as a real-time news feature. However, one of the cons is that the security features are quite limited, and their CFD spreads can be high.
London Capital Group
LCG works with no commissions, but they offer competitive spreads. The broker provides access to a wide range of instruments across different asset classes, including commodities, bonds, stocks, and of course, forex. The LCG account holders also get a unique benefit called negative-balance protection. This option is especially useful for beginner traders. It means that the trader will never lose more than what they have in their account.
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A great thing about LCG is that there is an instantaneous connection between their web, desktop, and app version. The broker also offers excellent insights and analyses which are better than the average. For those who like to trade on the go, LCG has an impressive mobile app. However, if you want to integrate third-party tools with their platform, you will not be able to do it. Unfortunately, there is no automated trading available.
Registered with the FCA, and regulated within the U.K., XTB is a broker company that provides access to a variety of investment instruments and more than 3,000 trading markets including indices, shares, commodities, forex, and cryptocurrencies. The broker has excellent searching tools that can be used to explore the markets.
X-Trade Brokers Review
Overall, the fees of XTB are close to the average for the industry. However, forex trading costs much less than average with this broker. They work with spreads.
Traders can use a range of popular platforms, including a custom one. They are all available for desktop and mobile.
XTB is one of those brokers that require an initial investment of $250. Most people consider the fact that stop losses are available only on their basic forex accounts as a drawback.
Pepperstone is based in Australia and offers full-trade execution services on various platforms, including mobile devices, browser-based, and downloaded versions (cTrader, WebTrader, MetaTrader 4). It has a broad portfolio of global services for 80 instruments in more than 70 asset classes (including forex). They also have commission-free services across a range of account types and a lot of trader benefits.
The minimum deposits for small trading accounts are AUD 200. Committed to developing their trader’s skills, Pepperstone offers excellent educational tools and resources.
They are also an actual ECN broker, which means they give their traders access to the exact pricing of currencies on the market (Forex.com is another ECN broker).
The broker has industry-leading rates for CFD operations and EUR/USD executions. One of the disadvantages of working with Pepperstone is that the tiers that reduce execution costs are pretty unclear.
Ameritrade is known for its powerful desktop trading platform. It combines excellent functionality with great design. The platform has everything a trader needs – sophisticated charts with every technical indicator, real-time scans, trade alerts, live TV, and premium research capabilities. And that’s not all; this powerful tool syncs the charts with mobile. Used for both forex and bitcoin futures and options, the platform is a great asset. Because of this sophistication, this may deter new traders with little experience.
Ameritrade offers 75 forex pairs, but the forex functionality is available to clients within the U.S. They don’t have a web-based platform for forex. TD Ameritrade is among the best online brokers for U.S.-based traders and investors. Optimized for security trading multi-asset desktop experiences will surely impress even professional users.
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Interactive Brokers is popular among professional traders. It is very active in the U.S. options and stock markets. However, when it comes to forex, they only work with classified ECPs. These are participants with assets of more than $10 million. InteractiveBrokers has highly professional traders and experienced investors.
The company is regulated and traded publicly. It offers more than 115 forex pairs and operates on the global market. This broker has an extensive range of investment instruments and asset classes, and they work with competitive fees. A great thing about InteractiveBrokers is that they also have discounts for high volumes.
Some of the disadvantages of this broker are that they mostly work with professionals; their desktop platform may be too complicated for novice traders. They also have a more flexible web platform, but it doesn’t feature forex charts. Since they are working with active traders, the broker charges for a monthly activity minimum. A significant drawback of this company is that they offer the retail spot forex only outside the U.S.
Although InteractiveBrokers is not a specialized forex broker, traders will find its platform comprehensive and their fees competitive.
How to Find the Best Forex Broker
The first thing you need to understand is that there’s nothing wrong with being a novice and you shouldn’t be ashamed about that. There are thousands of people starting this journey with you as you are reading this. The good news is that there are great, free online courses, tools, and resources to help you with your first step.
All the good brokers out there offer free demo accounts, online lessons, mentoring services, and tons of resources of which you can take advantage. The choice is so big that it can get confusing at times.
That’s why the best first step you can take is to select a good forex broker. This will make your life so much easier. We have already listed some of the best brokers, but you should do a little more work to choose the best one for yourself. Don’t fall into cunning sales traps but do your best to select a broker objectively.
Having a strategy in place is vital in forex trading, so why not use one to choose your forex broker?
Here are some additional tips for choosing the best forex broker. These will help you make the right decision.
Check if the Broker is Regulated
You want to work with regulated forex brokers. The broker you select must be registered with a regulating authority. In the U.S., this is the NFA or the CFTC; in the U.K. – FSA. There are many brokers without registration, but working with them might not be the best option. In the list above, we mentioned registered brokers only (including the three forex-specific brokers operating in the U.S. – IG, OANDA, and Forex.com.)
Find Out the Costs
FX brokers are making money with spreads and commissions. If they are commission based, they will charge you a fixed percentage of the spread. If you see an ad for a broker that claims they don’t charge commissions, don’t take that literally. This means they have the spread model in place, so they use wider spreads. Also, when calculating how much entering forex with a broker is going to cost you, don’t forget to add in your initial deposit. The amount may vary a lot. Forex traders work with different accounts; each of them has their own requirements. Some accounts are easy to open and require a minimal, initial amount. That’s one of the reasons why forex is becoming so accessible for new traders.
Select a Platform
The trading platform is where all trading takes place. Choosing one can be challenging. In the process, you will have to decide on several things. The first thing is to determine if you want an online or downloaded platform. If you wish to have certain features and options in the interface, you should consider those too. One of the most important things when choosing a forex trading platform is to make sure it is simple and easy to use.
Look for a Free Demo Account
To choose the right platform, you need to test several of them. This is precisely what people do when they get a free demo account. Most brokers offer these accounts, and they allow you to trade with virtual money and test your strategy before opening a real money account. In this way, you will not lose money for testing your market and strategy. Account opening is easy when you know what you want and need. This is also an excellent way to get a taste of working with a particular broker. Be aware that the demo platforms are very similar to the actual ones, but they are not entirely identical.
Easy Deposit and Withdrawal
When the time comes to withdraw your winnings, you need to have a smooth and quick process to do so. Forex brokers have their own withdrawal policies, so always read the fine print in their terms and conditions. Usually, they offer you a variety of methods from which to choose, but they come with a fee depending on the amount you want to withdraw.
Check the Currency Pairs
One of the crucial things to check when looking for a broker is what currency pairs they offer. Most brokers offer the major pairs, but if your strategy includes different ones, you should ask if they are available.
Different brokers will offer you different leverage amounts from which to choose. The leverage is significant as it can increase your potential for bigger winnings or destroy your account.
If you want to have a good forex trading experience, you need a broker with excellent customer service. If you are new to the market, you will have questions, and you will need their assistance at some point in your journey. Picking a good forex broker has a direct effect on your success in forex trading. Imagine if the platform freezes in a critical moment; you need a channel of communication to resolve this before losing money. It is not easy to test the level of customer service without being a client, but it’s possible. If the broker has a live chat, you may go there and ask them a few things or try the phone line to test the response time; the same goes for the email.
When it comes to selecting the forex broker with whom you will work, there is a lot more that can be said. We have provided you with the basics for making this critical choice. If you need more information, it’s a good idea to check some of the forex broker comparison websites. If you haven’t yet found the best broker for your needs, don’t give up and keep researching. Remember, choosing a forex broker is one of the most important decisions at the start of your forex journey.
Necessary Trader Skills for Forex
The world of forex is exciting and attracts more and more people because it offers excellent opportunities for money-making. However, the cases of people losing money on a massive scale are also increasing. As with any form of investment, this one involves a certain amount of risk. Forex is dynamic, and prices go up and down very quickly. No recipe will guarantee success, but there are ways to increase the chances of good profits. If you want to become a trader yourself, there are several essential skills you need to have mastered before you even start trading. If you are a beginner, we recommend taking advantage of forex brokerage while you gain some experience and knowledge and only then try trading yourself.
List of Skills Every Forex Trader Must Possess
- Keep the emotions out – Ask yourself if you will accept losing money without getting emotional about it. A successful trader knows how to stay calm even when the market is going down. Taking significant risks may trigger you, but you need to be able to remain calm and collected.
- Confidence comes first – You need to have a high level of confidence in your strategy and your abilities. There is no room for fear or doubt in this game.
- Full dedication and patience – Trading on forex will require commitment, dedication, curiosity, and undivided attention. The ability to stay focused and concentrated is vital. Patience is the key.
- Be objective – You need to be able to think straight-forward if you want to trade on forex.
- Good organization – You need to be able to build and reinforce good habits quickly and to be well organized.
- Forex will not make you a millionaire tomorrow – Forex is not a quick fix for your financial situation. You need to be realistic about it.
- Be knowledgeable – Although there are brokers and sophisticated software, you need to be knowledgeable if you want to be a trader. This will be your edge when market opportunities arise. You need to keep yourself up-to-date with everything happening on the market.
- Be in control – You are responsible and in control of your decisions as a trader, at all times.
Thank you for reading through this article. By now, we think you should have enough basic knowledge and information to get your forex journey started. We hope you now have the confidence to make your first steps into one of the most exciting financial markets.
Whether you are a beginner or a professional trader, this list has something to offer. Look at our top picks if you want an overall, excellent forex-specific broker. If you are looking for a more personalized approach or you want to diversify with several investment instruments, check some of the smaller, more flexible brokers with a broader portfolio.
We recommend keeping this article handy, so you can reference it whenever you need to remind yourself of specific terms, trading tools or tips on selecting the best broker. If you are having doubts, read brokers reviews and comparisons until you feel comfortable.
If you already have a broker, please share your experience and the steps you took to find them.