The post How to Choose a Forex Broker by Anna Yen appeared first on Benzinga. Visit Benzinga to get more great content like this.
Start trading forex with FOREX.com as your trusted broker and earn cash back on your trades!
If you’re looking for a large and liquid financial market, the forex market trades trillions of dollars in volume every day. FX brokers support trading services in the market by providing platforms for traders to buy and sell forex. In this guide, Benzinga explores how to go about choosing a forex broker and reviews key considerations, including regulatory compliance, trading costs, trading platforms, customer support, and trading tools.
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What is a Forex Broker?
A forex broker acts as a financial intermediary that connects traders to currency markets. Brokers facilitate price discovery and market liquidity while providing a trading platform for trading execution. A reputable forex broker can support you with research, resources and trading capabilities while meeting relevant regulatory requirements.
11 Things to Look for When Choosing a Forex Broker
To access a liquid forex order book, you’ll trade through a forex broker. Here are some factors to look for when choosing a forex broker that is reliable and trustworthy.
Demo Account
Many forex traders and investors often need a safe and free platform to hone their trading skills before diving right into the real world. A demo account allows retail traders to practice trading strategies and understand the risk involved in forex trading without risking real money or paying trading costs.
Initial Deposit
One factor that makes forex trading accessible to investors is the minimum deposit amount. Traders can fund their live trading accounts with as low as $100 for investors who want to start off small. You can use your account to make currency exchanges as needed.
Pips and Profit
Pip spreads represent the difference between the bid and ask prices for a currency pair. The wider the spread, the more the trader will have to pay in transaction costs, which can eat into their profits.
Leverage and Margin
Leverage allows traders to build larger positions with a smaller amount of capital, but it comes with increased risk. If the market moves against the trader’s position, the losses can quickly exceed the amount of capital in their margin account.
To trade on leverage, you will need to keep a level of margin in your account that satisfies broker and regulatory requirements. Make sure you are aware of the margin requirements and that you have enough capital to meet them.
Currency Pair Offerings
Having access to a wide range of currency pair offerings is important for traders because it allows them to take advantage of different trading opportunities and strategies. A good broker will offer a wide range of currency pairs, including major currency pairs, minor currency pairs and exotic currency pairs.
Commissions and Spreads
Forex brokers make money by charging traders a spread, which is the difference between the buy and sell price of a currency pair. Choose a broker with competitive spreads and fees to maximize your profits.
Some brokers also charge additional fees, such as withdrawal fees, inactivity fees and account maintenance fees. Be sure to read the fine print and understand the fee structure of a broker before signing up.
Trading Platforms
The trading platform is the software that connects the trader to the forex market. An effective trading platform should be easy to use, reliable and offer a wide range of tools and features. Most forex brokers offer MetaTrader 4 and 5 platforms, which have a range of built-in features and add-ons, such as charting tools, technical indicators and automated trading options.
Easy Deposit and Withdrawal Methods
When choosing a forex broker, consider the deposit and withdrawal methods offered. Ideally, you can access a range of payment options, such as credit cards, bank transfers, e-wallets and other payment methods. Keep in mind the time required for processing withdrawals with the fees charged.
Customer Service
A reliable broker should have a team of customer support representatives available 24/7 to assist traders with any issues. Support can be offered through live chat, email, phone or the site. The website will usually have a comprehensive FAQ section and educational resources to help traders learn more about the forex market.
Educational Resources
Forex trading involves risk and requires traders to have a solid understanding of various aspects of the market. You may need to understand market dynamics, technical analysis, fundamental analysis, risk management and trading psychology to make informed trading decisions. Brokers often offer resources in the form of articles, videos, webinars, online courses, trading tools and market analysis. Educational resources can help traders stay up-to-date with the latest market trends and news, which can be critical to making profitable trading decisions.
Regulatory Compliance
Trading services are regulated by certain bodies to ensure they adhere to high standards of conduct Consider regulation and licensing before you choose a forex broker.
Respected financial regulatory bodies include the Financial Conduct Authority (FCA) in the U.K., the U.S. Securities and Exchange Commission (SEC) in the U.S., and the Australian Securities and Investments Commission (ASIC) in Australia.
Respected financial regulatory bodies include the Financial Conduct Authority (FCA) in the U.K., the U.S. Securities and Exchange Commission (SEC) in the U.S., and the Australian Securities and Investments Commission (ASIC) in Australia.
Types of Forex Brokers
There are different types of forex brokers available in the market, each offering different features and services. Depending on your individual needs as a trader or investor, you can choose from different types of forex brokers. Choosing the right account type, trading platform, and brokerage company is important in achieving a successful forex investment. Here are the different account types a forex brokerage company may offer.
Market Maker
A Market Maker is a type of broker that provides liquidity to clients by offering them both buying and selling prices for currencies. The broker will often accept the risk of holding the client’s position open, while also taking the other side of the trade.
Market Maker forex brokers generally charge higher spreads than other types of brokers as they are essentially providing a service by taking the risk of holding the client’s position open.
Electronic Communications Network (ECN)
An ECN broker stands for Electronic Communications Network and is an account type that provides direct access to the interbank market without any dealing desk interference. ECN brokers can offer tighter spreads on major currency pairs compared to market makers, as they are able to access liquidity from multiple sources.
ECN Forex Brokers generally charge a commission fee per trade and are often more suitable for experienced traders who can take advantage of tight spreads and execute large volumes of trades.
Straight Through Processing (STP) Forex Broker
STP stands for Straight Through Processing, this type of broker is an intermediary between the trader and the market. STP brokers route all orders directly to liquidity providers, such as banks, and do not take the other side of the trade. This makes them suitable for those who want a low cost and fair trading environment.
STP brokers generally charge a small commission fee per trade, and can offer tight spreads on major currency pairs. They are usually more suitable for traders who are interested in automated trading systems, such as those offered by the MetaTrader 4 platform.
CFD Broker
A CFD forex broker is a financial intermediary that allows traders to buy and sell currency contracts for difference (CFDs). A CFD is a derivative instrument that lets traders speculate on the price movements of currencies without actually owning the underlying asset. With a CFD, traders can take advantage of both rising and falling prices in order to make profits.
Unlike traditional forex brokers, CFD brokers do not take the other side of a trader’s trades, making them suitable for traders who want to execute large volumes of trades in a short period of time. CFD brokers typically charge commission fees and may offer leverage on certain instruments.
No Dealing Desk
A No Dealing Desk (NDD) forex broker is a type of forex broker that allows their clients to directly access the interbank market. This means that instead of the broker taking the other side of a client’s order, the orders are sent directly to the liquidity providers in the interbank market to be filled. This allows for greater transparency and price competition between different liquidity providers, leading to tighter spreads and better execution.
No Dealing Desk brokers generally do not charge any commissions on trades, but may instead charge a small mark-up on the spread. They are often more suitable for experienced traders who can take advantage of tight spreads and fast execution times.
Finding Favorable Trading Conditions
Choosing the right brokerage account can be the difference between success and failure in the forex market. By considering these key factors, you can ensure that you choose a reputable, reliable, and cost-effective forex broker that will help you achieve your trading goals.
Trading forex using a well-equipped broker arms you with the ability to navigate forex markets. Choosing a reliable and trustworthy forex broker is a key step in successful forex trading. Before you pick a broker, consider the platform features and resources. By doing your research and choosing a forex broker that meets your needs, you can trade with confidence.
Benzinga’s Favorite Forex Brokers
Anyone who trades forex will require the services of the most reputable forex brokers. After thorough research, here are reliable brokers that Benzinga recommends.
FOREX.com is a one-stop shop for forex traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for brokers searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels. While FOREX.com is impressive, remember that it isn’t a standard broker.
Best For
- MetaTrader 4 users
- Beginner forex traders
- Active forex traders
- Impressive, easy-to-navigate platform
- Wide range of education and research tools
- Access to over 80 currencies to buy and sell
- Leverage available up to 50:1
- Cannot buy and sell other securities (like stocks and bonds)
IG is a comprehensive forex broker that offers full access to the currency market and support for over 80 currency pairs. The broker only offers forex trading to its U.S.-based customers, the brokerage does it spectacularly well. Novice traders will love IG’s intuitive mobile and desktop platforms, while advanced traders will revel in the platform’s selection of indicators and charting tools. Though IG could work on its customer service and fees, the broker is an asset to new forex traders and those who prefer a more streamlined interface.
Best For
- New forex traders who are still learning the ropes
- Traders who prefer a simple, clean interface
- Forex traders who trade primarily on a tablet
- Easy-to-navigate platform is easy for beginners to master
- Mobile and tablet platforms offer full functionality of the desktop version
- Margin rates are easy to understand and affordable
- Access to over 80 currency pairs
- U.S. traders can currently only trade forex
- Customer service options are lacking
- No 2-factor authentication on mobile
HYCM is 1 of the world’s leading forex brokers, offering investors access to over 69 unique currency pairs. However, forex isn’t the only thing the broker offers — HYCM also offers high rates of leverage, stock and ETF trading, commodity investing and much more. Getting started with HYCM is quick and easy, and most investors can open an account in as little as 10 minutes.
HYCM offers a varying fee structure, which allows investors to choose the spread option that’s best for them. A wide range of educational and investing tools are available, which can be equally beneficial to both experienced and novice traders. Though HYCM isn’t currently available in the United States, it can be a great choice for residents of the other 140 countries where it offers service.
Best For
- Investors who want a customizable fee schedule
- Traders comfortable using the MetaTrader platform
- Islamic traders who need swap-free accounts that don’t build interest
- Mobile app with a simple trading experience
- Wide range of currency pairs available
- Excellent selection of educational tools
- Not currently available to traders based in the U.S.
86% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Plus500 is a European derivatives broker focusing on contracts for difference (CFDs). CFDs are similar to binary options in the U.S. where traders take all-or-nothing speculation on the prices of certain securities like indices, commodities or currencies. While not legal to trade in the U.S., CFDs are legal in many jurisdictions across the globe and Plus500 offers a wide array of tradable markets using these instruments.
Plus500 doesn’t charge commission and only profits off the spread, which is the difference between the buy and sell price of a specific security. But Plus500 is not a broker for beginners — the education materials are sparse and CFDs are risky derivatives capable of sapping out all of an investor’s capital. Only trade these instruments if you understand how they operate and the risks involved with buying them.
Best For
- Traders looking for a smooth mobile experience
- Great mobile app
- Low spreads and commissions
- Unlimited demo account
- Only derivatives are available
- Not open to U.S. residents
Billing itself as the world’s 1st eco-friendly broker, CedarFX makes it easy to trade and give back to the planet. You can choose a 0% Commission Account or an Eco Account — or open multiple accounts to meet all your needs.
CedarFX offers access to a wide range of tradable securities, including stocks, futures, major and exotic forex pairs, cryptocurrencies and more. Though CedarFX could introduce a few additional educational resources, the broker remains a unique option for traders invested in giving back.
Best For
- Forex investors
- Investors interested in 0% commission or eco conscious trading
- Investors looking for 24/7 customer service
- Allows users to offset their carbon footprint
- 0% commission investing
- Offers demo account access
- 24/7 customer service available through live chat
- Eco Account Option (10 trees planted for each lot traded)
- Fast deposits/withdrawals with Bitcoin
- Limited number of educational resources for new investors
Standard Accounts: $1,000
Founded in 2006, IFC Markets is a popular forex and contracts for difference (CFD) broker that provides high-quality trading services to over 185,000 clients from more than 80 countries. The broker has oversight from the British Virgin Islands Financial Services Commission (BVI FSC) as well as the Labuan Financial Services Authority (LFSA) in Malaysia.
IFC Markets offers trading in over 600 financial instruments including forex stocks indices commodities cryptocurrency futures and synthetic assets through excellent trading platforms: MetaTrader 4 and MT5, and its own developed NetTradeX advanced platform. IFC Markets also gives clients unlimited trading opportunities via its unique GeWorko Portfolio Quoting Method that lets traders create their own synthetic instruments or choose from PCI Library synthetic instruments created by professionals.
Best For
- Traders who want to create their own trading instruments
- Intraday and mid-term traders
- Small volume traders
- Trading platforms variety
- The GeWorko Portfolio Quoting Method lets you create synthetic assets
- 15 years experience in the business
- Highly rated by clients with 8 recent international awards
- Insured by AIG Europe Ltd.
- Only regulated by 2 minor agencies
- Not available to traders in the U.S., Japan and Russia
A fully regulated broker with a presence in Europe, South Africa, the Middle East, British Virgin Islands, Australia and Japan, Avatrade deals with mainly forex and CFDs on stocks, commodities, indexes, forex, cryptocurrencies, etc. This brokerage is headquartered in Dublin, Ireland and began offering its services in 2006. It offers multiple trading platforms and earns mainly through spreads.
Best For
- Beginners
- Advanced traders
- Traders looking for a well-diversified portfolio
- Controlled by regulatory agencies of multiple countries
- Choice offered in terms of trading platforms
- Support available in 14 languages and trading platforms in 20 languages
- Practice/demo account available for trying out
- Breadth of trading assets
- Does not accept customers from the U.S. as it isn’t regulated in the U.S.
- Transferring funds to the account may take up to five days; withdrawals could take up to 10 days
Frequently Asked Questions
Which forex broker is best for beginners?
There are several top-rated forex brokerages that are reliable for beginners, including Forex.com.
How much money should a beginner invest in forex?
As a beginner trader, it is advisable to invest an amount you can afford to lose. Several forex brokers offer demo trading accounts or live trading accounts that you can fund with as little as $100.
What is the safest forex broker?
The safest forex broker complies with relevant regulation and has a long track record in the forex market.
The post How to Choose a Forex Broker by Anna Yen appeared first on Benzinga. Visit Benzinga to get more great content like this.
