Go to XTB
|Excellent 24-hour customer service. More than 3000 instruments to trade. Regulated broker.(*) Warning: Your capital is at risk. 81% of retail CFD accounts lose money.|
Forex Trading: Trade over 50 currency pairs on the Forex market, with spreads as low as 0.1 pips and no requotes, at this internationally regulated broker with over 15 years of experience.Demo Account: Yes
Minimum Deposit: 0 €/$
Trading Platforms: xStation5, iOS App, Android App.
Execution: Market Maker / STP
Regulation: FCA, CNMV and IFSC
Web Page: https:/www.xtb.com
Go to Pepperstone
|Very low spreads on over 1,200 instruments. 24/7 support, fast execution and no requotes.|
Forex Trading: Over 60 currency pairs at the best prices sourced directly from liquidity providers. Professional trading platforms and your money protected with an FCA regulated broker.Demo Account: Yes
Minimum Deposit: 200 €/$
Trading Platforms: MetaTrader 4, MetaTrader 5, cTrader, TradingView.
Execution: STP / NDD
Regulation: FCA, ASIC, CySEC, BaFin, DFSA, CMA and SCB
Web Page: https://www.pepperstone.com
Go to eToro
|Buy stocks without commission. Automatically copy the best investors with the eToro CopyTrader tool.(*) Warning: 78% of retail CFD accounts lose money.
Forex Trading: With eToro you can trade manually, through its intuitive platform, in over 45 currencies or use the CopyTrader tool to follow other successful traders and copy their trades.Demo Account: Yes, unlimited
Minimum Deposit: 200 $
Trading Platforms: WebTrader, iOS App, Android App.
Execution: Market Maker
Regulation: FCA, CySEC and ASIC
Web Page: https://www.etoro.com
Go to XM Group
|Bonus of $30 without deposit and bonuses of up to $5,000 per deposit. Trade Forex with ultra-low spreads.(*) Clients registered with XM Group's EU-regulated entity do not have access to the bonds.|
Forex Trading: Over 55 major, minor and exotic currency pairs with tight spreads starting from 1 pip and free training and daily Forex market analysis.Demo Account: Yes, unlimited
Minimum Deposit: 5 $
Trading Platforms: MetaTrader 4, MetaTrader 5.
Execution: Market Maker
Regulation: CySEC, FSC and ASIC
Web Page: https://www.xm.com
Go to Exness
|Low spreads as low as 0.0 pips. No swaps on most instruments. Instant withdrawals.|
Forex Trading: You can trade more than 100 Forex currency pairs with stable spreads (from 1 pip on Standard accounts and from 0 pips on Raw accounts) and no requotes.Demo Account: Yes
Minimum Deposit: 10 $
Trading Platforms: MetaTrader 4, MetaTrader 5.
Execution: Market Maker / ECN
Regulation: FCA, CySEC, FSCA, FSC, CBCS, FSA and SDL
Web Page: https://www.exness.com
Go to AvaTrade
|One of the most regulated brokers worldwide (in 9 different jurisdictions).|
Forex Trading: More than 50 currency pairs with tight spreads (e.g. 0.9 pips for EUR/USD) and several platforms for manual or automated trading.Demo Account: Yes
Minimum Deposit: 100 €/$
Trading Platforms: WebTrader, MetaTrader 4, MetaTrader 5, iOS App, Android App.
Execution: Market Maker
Regulation: Central Bank of Ireland, ASIC, BVI, FSCA and FSA
Web Page: www.avatrade.com
Go to IQ Option
|$1 minimum investment. Powerful and intuitive trading platform. Fast withdrawals.(*) Warning: Your capital might be at risk.|
Forex Trading: You can trade from as little as $1 and choose the leverage on each trade. More than 30 different currency pairs to trade.Demo Account: Yes, unlimited
Minimum Deposit: 50 €/$
Trading Platforms: Proprietary Platform, iOS App, Android App.
Execution: Market Maker
Web Page: https://www.iqoption.com
Go to IC Markets
|True ECN account with ultra-low spreads and ultra-fast execution designed for scalping and automated trading systems.|
Forex Trading: Over 60 Forex pairs with low spreads (average EUR/USD on IC Markets is 0.1 pips) with no requotes, no price manipulation and no restrictions.Demo Account: Yes
Minimum Deposit: 200 $
Trading Platforms: MetaTrader 4, MetaTrader 5, cTrader.
Regulation: ASIC, CySEC and FSA
Web Page: https://www.icmarkets.com
Go to Eightcap
Forex Trading: Broker to trade over 40 currency pairs with premium liquidity and low spreads (from 0.5 pips on Standard accounts with no commission or 0 pips on Raw accounts with commission per lot).Demo Account: Yes
Minimum Deposit: 100 $
Trading Platforms: MetaTrader 4, MetaTrader 5, TradingView.
Execution: STP / ECN
Regulation: ASIC and SCB
Web Page: https://www.eightcap.com
Go to Axi
Forex Trading: Axi is a regulated broker offering access to over 70 Forex currency pairs with fast execution and competitive spreads (from 0.4 pips on Standard account).Demo Account: Yes
Minimum Deposit: 0 €/$
Trading Platforms: MetaTrader 4.
Execution: STP / ECN
Regulation: FCA, ASIC, FSA and DFSA
Web Page: https://www.axi.com
Go to RoboForex
|$30 welcome bonus with a minimum deposit of $10 and bonuses up to $50,000 per deposit.|
Forex Trading: Roboforex offers several professional trading platforms and more than 40 pairs to trade with variable spreads from 0 pips.Demo Account: Yes, unlimited
Minimum Deposit: 0 €/$
Trading Platforms: WebTrader, MetaTrader 4, MetaTrader 5, cTrader, iOS App, Android App.
Execution: STP / ECN
Web Page: https://www.roboforex.com
Go to FP Markets
Forex Trading: Broker with ECN execution, no dealing desk and no requotes, spreads from 1 pip on Stardard accounts and from 0 pips on Raw accounts and more than 60 currency pairs to trade.Demo Account: Yes
Minimum Deposit: 100 €/$
Trading Platforms: MetaTrader 4, MetaTrader 5, IRESS.
Regulation: ASIC and CySEC
Web Page: https://www.fpmarkets.com
Go to OANDA
|Deposit bonus up to $5,000.|
Forex Trading: A broker with more than 25 years of experience, it offers more than 45 currency pairs and incorporates numerous market analysis tools in its platforms.Demo Account: Yes, unlimited
Minimum Deposit: 0 $
Trading Platforms: MetaTrader 4, MetaTrader 5.
Execution: Market Maker
Regulation: FCA, ASIC, NFA, IIROC, MFSA, BVI FSC
Web Page: https://www.oanda.com
Go to Capital.com
|(*) Warning: 81.40% of retail CFD accounts lose money.|
Forex Trading: An easy-to-use platform that allows you to trade over 100 currency pairs, with spreads as low as 0.8 pips and the peace of mind of working with an internationally regulated broker.Demo Account: Yes, unlimited
Minimum Deposit: 20 €/$
Trading Platforms: WebTrader, TradingView, iOS App, Android App.
Execution: Market Maker
Regulation: FCA and CySEC
Web Page: https://www.capital.com
Go to OctaFX
|50% bonus on every deposit.|
Forex Trading: 35 currency pairs available for trading with variable spreads (from 0.6 pips) and no swaps on the MetaTrader 5 platform.Demo Account: Yes, unlimited
Minimum Deposit: 5 €/$
Trading Platforms: MetaTrader 4, MetaTrader 5.
Execution: STP / ECN
Web Page: https://www.octafx.com
What is a Forex Broker?
A Forex broker is an agent or company that executes the operations of buying or selling currency pairs requested by its clients. Its main function is to act as an intermediary between its clients and the foreign exchange market by finding a seller when its client gives a buy order or a buyer when its client gives a sell order.
The term “broker” refers to the figure of an intermediary between buyers and sellers. It is applicable to all kinds of fields and sectors such as insurance, real estate,..
A Forex broker can also offer its clients the possibility of trading other financial instruments such as shares, stock indices, raw materials, precious metals, energy, cryptocurrencies, etc
In order to be able to act as a broker, it is necessary to comply with current regulations governing the financial markets and also to be supervised and licensed by the competent regulatory bodies.
Until a few years ago, a private investor could only access the financial markets, such as Forex, through large banks or certain financial institutions but with the advance of new technologies and the Internet, online brokers have emerged and revolutionised the sector, popularising and democratising investment by allowing anyone to trade from anywhere simply by using a computer, tablet or smartphone and an Internet connection. All this with much lower commissions than those of traditional banks.
There are 2 main types of Forex brokers depending on how their clients’ orders are executed:
Dealing Desk Brokers
They are brokers with a “money desk”. This means that their clients’ trades do not actually go out to the market but are executed on the Forex broker’s own trading desk. These types of brokers create an internal market for their clients and look for the counterparty to each trade within the trades of their other clients and if they do not find it they themselves act as the counterparty to the trade ensuring permanent liquidity and availability even if that trade results in a profit or loss.
Non Dealing Desk Brokers
NDD (Non Dealing Desk) brokers do not have a “money desk” and are only responsible for sending trades to the market. They are connected to liquidity providers (which are usually large banks and financial institutions such as Deutsche Bank, Bank of America, Barclays, Goldman Sachs, JP Morgan, CitiBank, HSBC,…) which are the counterparties to each trade.
What is Forex?
Forex is the term that refers to the foreign exchange market. It is also known by the abbreviation FX. Both come from the combination of the words “Foreign Exchange”.
Forex is the largest and oldest financial market in existence. The Forex market is the one with the highest growth projection in the world today. Every day more than 5 trillion dollars are traded in the foreign exchange market. Many financial agents participate in it all over the world, such as banks, financial institutions, investment fund managers, retail investors, hedge funds,…
In this market, the exchange rates of some currencies are established with respect to others. The currencies are quoted in pairs. In order to establish the price of a currency, it is necessary to compare it with another currency. There is a great multitude of currency pairs, for example
EUR/USD (euro against US dollar).
UDS/JPY (US dollar against Japanese yen).
EUR/GBP (euro against the British pound)
GBP/USD (British pound against US dollar).
AUD/USD (Australian dollar against US dollar).
EUR/JPY (euro against Japanese yen).
USD/CAD (US dollar against Canadian dollar).
NZD/USD (New Zealand dollar against US dollar).
As it is a decentralized market you can invest in Forex 24 hours a day (from Sunday to Friday) and it has a series of important advantages that we will see below.
To start investing in Forex you only need to open an account and deposit funds in a Forex broker, an Internet connection and a computer, tablet or mobile phone on which you will have the trading and analysis platform provided by the broker itself.
Advantages of the Forex market
The Forex market timetable is one of its main attractions. As the famous Wall Street movie says: “Money never sleeps”, in Forex it is fully accomplished as it is an active market 24 hours a day where there are always movements.
Due to different time zones, whether it’s 11am or 11pm, somewhere in the world, there are always buyers and sellers trading currency pairs.
Although it is true, there are moments of greater movement coinciding with the three main stock market sessions (Europe, Asia and the United States).
The flexibility of Forex schedules allows you to perfectly combine both your learning and your work as a trader with your current professional activity and doesnt require exclusive dedication.
The fact that there are no session closings also means that gaps or gaps in the price at the next opening are avoided in the event of an important news item during the hours when the market is closed.
Forex is also the most liquid financial market with over $5 trillion traded daily. It is a fast growing market in which it is very easy to enter and exit at any time.
This is not always the case in less liquid markets such as equities. At certain times, you may want to sell a stock and not find a buyer or vice versa. In Forex there are always buyers and sellers to act as counterparties to your trades, especially in the most popular currency pairs.
– Transparency and Security
Manipulation in a market as large as the foreign exchange market is almost impossible.
Any investor, no matter how big, cannot significantly influence the price of a currency. Even relevant decisions by a central bank (which occur infrequently) can affect a currency occasionally but after a while it will tend to stabilise according to the direction taken by most investors.
On the contrary, in the case of company shares, prices can be adulterated or “inflated” without the knowledge of investors, company balance sheets that give a positive image of the company’s situation can be manipulated or “made-up”,… From one moment to the next the real situation is discovered and the price of the shares can sink, shareholders panic and everyone wants to sell without anyone wanting to buy so the shares you have can become worthless.
In Forex there is no systemic risk and no currency disappears overnight, which is why it is one of the safest markets in the world.
– Information for trading decisions
In the case of investing in shares of a company, you should be aware of and follow numerous factors: balance sheets of the company, presentation of results, changes in personnel in the management team, situation of competing companies, important news in the sector, changes in the company’s strategy, important commercial operations achieved or failed, capital increases, entry or exit of important shareholders,..
A lot of information is needed to make good trading decisions and the worst thing is that this information does not reach all investors at the same time on an equal basis. On many occasions there is an exchange of privileged information between managers, main shareholders,… who know the situation and important changes affecting the company before the rest.
By contrast, in the Forex market virtually all news reaches everyone at the same time, whether they are large investors, financial institutions, brokers, or even retail investors. The information you need to follow to make your trading decisions on one or several currency pairs is much less.
– Profit opportunities
Even if a certain currency falls there are always opportunities to make profits in other currencies or in the same currency by trading in the opposite direction.
In Forex you can make profits whether the price of a currency pair goes up or down. If you think the price will go up you can open a buy position to close it later with a sell (go long) but if you think the price will go down you can open a sell position to close it later with a buy (go short).
You have many currency pairs to trade and if you learn hard and are disciplined you can make significant profits in the forex market.
– Low cost
Starting to invest in the Forex market does not require high capital. You will need to open an account with a Forex broker who will act as an intermediary in the operations you carry out. Nowadays most brokers do not require high initial deposits to open a trading account. You can start investing in most with $100 or even up to $1.
There are a lot of forex brokers offering welcome promotions and bonuses for making an initial deposit of funds into your trading account, even doubling the amount deposited and thus considerably increasing your trading capacity. Others choose to offer a welcome bonus with no deposit required. These types of bonds are usually small amounts (usually around $30), but they have the great advantage of allowing you to open a live account and try out the trading platform without any risk, as you do not have to deposit your money initially
As we will see a little later, the Forex market is one of the financial markets with the lowest cost per trade. Most brokers apply their commissions mainly through a spread, the difference between the buy and sell price. As it is a highly liquid market, this spread tends to narrow due to supply and demand. Even the highest trading volume pairs have much lower spreads than less traded or exotic pairs.
– Ease of learning and trading
Another great advantage of the Forex market is that you can learn and trade from anywhere in the world simply by having an internet connection and a computer, tablet or mobile phone. The flexibility is total. That’s why this market is so attractive for retail traders and is growing every day.
On the Internet you can find a lot of information to learn how to invest, investment strategies, training material,… although I anticipate that the most important thing is practice. And the best way to practice is to choose a serious and professional Forex broker, who is properly regulated, and open a demo account. This type of demo account comes preloaded with a virtual balance that will allow you to make test trades with the same conditions as a real account but without putting your money at risk. View brokers with demo account.
How do you trade Forex?
Forex traders aim to make money by buying and selling these currencies which are traded in pairs, i.e. crosses of one currency against another (EUR/USD, EUR/GBP, UDS/JPY, AUD/NZD,…).
Foreign exchange trading is not a new form of profit that has emerged recently as currencies have been traded throughout history since the very appearance of money. What is much more recent is the ease of being able to trade Forex from anywhere in the world via the internet from a computer, tablet or mobile phone and the accessibility for retail investors. Today there are many people who are making money trading Forex from home either as full time professional traders or simply spending a few minutes a day locating trading opportunities and opening, monitoring and closing their positions.
In each of the currency pairs, the first currency functions as the commodity to be bought or sold and the second currency functions as money. For example if you choose the GBP/USD pair and open a buy position, you would be buying Sterling against the US Dollar. It doesn’t matter what currency you have deposited funds in your trading account with, as the Forex broker platform you use will automatically transform the amounts.
Each of the currencies is represented by 3 letters. These 3 letters of each currency follow the international standard ISO 4217 which defines all the currencies of the world. For example EUR for the Euro, USD for the US dollar, GBP for the pound sterling or JPY for the Japanese yen, among others.
What are the most popular currency pairs in Forex?
The four main currency pairs in the Forex market are
EUR/USD (Euro Vs US Dollar)
GBP/USD (Pound Sterling Vs US Dollar)
USD/JPY (US Dollar vs. Japanese Yen)
USD/CHF (US Dollar vs. Swiss Franc)
The most popular currency pair worldwide is the EUR/USD and it is also the one with the highest trading volume. It is estimated that approximately 70% of Forex transactions worldwide are made on this pair. It is therefore the most liquid and refers to the two most important currencies currently in circulation worldwide. Therefore, it is not only traded by retail traders but also by large banks, financial institutions,..
The other three previous major pairs of the EUR/USD also have a large volume of transactions and liquidity.
There are also other currency pairs that are usually very attractive and popular for professional traders such as
GBP/JPY (Pound Sterling vs. Japanese Yen)
EUR/JPY (Euro vs. Japanese Yen)
These are strong, volatile pairs that can make significant profits from wide price fluctuations, but also pose somewhat greater risk if you are a beginner.
Next, in terms of trading volume, we have other pairs that are the result of crosses of the major currencies we have mentioned above (USD, EUR, GBP, JPY and CHF) with other major currencies (such as the AUD Australian dollar, CAD Canadian dollar or the NZD New Zealand dollar). Examples:
USD/CAD (US Dollar vs. Canadian Dollar)
EUR/GBP (Euro Vs Pound Sterling)
EUR/AUD (Euro Vs Australian Dollar)
EUR/CHF (Euro Vs Swiss Franc)
EUR/CAD (Euro Vs Canadian Dollar)
GBP/CHF (British Pound Vs Swiss Franc)
GBP/AUD (Pound Sterling Vs Australian Dollar)
GBP/CAD (Pound Sterling Vs Canadian Dollar)
CHF/JPY (Swiss franc vs. Japanese yen)
AUD/USD (Australian Dollar Vs US Dollar)
AUD/CAD (Australian Dollar Vs Canadian Dollar)
AUD/CHF (Australian Dollar Vs Swiss Franc)
AUD/JPY (Australian dollar vs. Japanese yen)
CAD/JPY (Canadian Dollar vs. Japanese Yen)
CAD/CHF (Canadian Dollar Vs Swiss Franc)
NZD/JPY (New Zealand Dollar vs. Japanese Yen)
NZD/USD (New Zealand Dollar vs US Dollar)
NZD/CHF (New Zealand Dollar vs. Swiss Franc)
NZD/CAD (New Zealand Dollar Vs Canadian Dollar)
Finally we have the exotic currency pairs which have a lower trading volume than those mentioned so far and a much higher volatility with the consequent increase in risk to be able to predict their behaviour. These pairs include crosses with less frequent currencies or currencies from emerging economies such as the RUB (Russian rouble), MXN (Mexican pesos), SEK (Swedish krona), NOK (Norwegian krona), DKK (Danish krone), HUF (Hungarian guilder), ZAR (South African rand), PLN (Polish zloty), TRY (Turkish lira), BRL (Brazilian real), SGD (Singapore dollar),..
In Forex you can make money from the price fluctuations of the different currency pairs and you can do this whether the price goes up or down as you can choose 2 different options when opening a position:
Going long: opening a buy position if you think the price will go up and then closing the position with a sell order.
Going short: opening a sell position if you think the price will go down and then closing the position with a buy order.
When you open a position you are trying to predict how the price will behave according to the strength of one currency in the pair against the other. Unlike other investment products in which you acquire ownership of the financial instrument you are investing in and therefore only make money if its value increases and you sell it at a higher price than when you bought it, in Forex you can also trade in the opposite direction, that is, you can ask your Forex broker to open a sell position if you think the price will go down, this is called “going short”, to close it later with a buy and collect the profits.
Buying cheap and selling expensive or selling expensive and buying cheap is the goal of the millions of Forex market participants.
Why do currency values fluctuate?
The fluctuations experienced by currency pairs – and which we can take advantage of as investors – are generated by various causes, mainly by real money flows and expectations of change in global macroeconomic conditions.
As in other markets, in Forex there are a number of variables that influence currency value fluctuations, such as the GDP of a country or region that operates with a particular currency, inflation, the evolution of interest rates, the unemployment rate, the trade surplus or deficit as well as political news and rumours that affect the market’s own psychology.
In a manner of speaking, a currency cross is like pitting the economies of two countries (the issuers of the currencies that make up that pair) against each other. Macroeconomic causes, political events, conflicts, trade issues, etc., affect a currency (for better or worse) and this is felt in the pair (which may appreciate or depreciate).
How can currency fluctuations in the Forex market be predicted?
To try and predict the behaviour of a currency pair on Forex, most investors are divided into 2 groups according to the type of analysis they perform:
Fundamental analysis: used by investors who operate in Forex generally in the long term and based on economic variables, macroeconomic data (interest rates, unemployment rate, inflation, etc.). The various economic news items that happen on a daily basis have a greater weight in this type of analysis.
Technical analysis: generally used by investors who trade Forex in the short and medium term and is based on charts with the historical value that a particular currency pair has taken, in which they try to look for trends and formations with the help of indicators based on mathematical formulas, statistics, etc. Technical analysis attempts to predict future currency price movements based on supply and demand analysis.
What is currency pair correlation in Forex?
The different currencies are not quoted independently of each other on Forex, there is some correlation between them (some more, some less. Some directly and some inversely). Similarly, there are also correlations between some currencies and commodities. An example of this is the direct correlation we can find between the Australian dollar (AUD) and gold.
These correlations occur because there are common factors affecting more than one currency.
Forex Broker Regulation
To make the right decision on which Forex broker to choose, one of the key aspects is to check whether or not it is a regulated broker and under which regulatory bodies it is.
Not all Forex brokers need to be regulated in order to offer their services. Everything will depend on which country the broker is based and in which countries it can or cannot operate. For example, the investor protection directives in the United States or Europe are much more rigorous and restrictive than those in other countries with softer or more tolerant regulations.
The main functions of the regulatory bodies are to ensure that investors are protected and that their money is insured. The most restrictive directives oblige any broker to keep their clients’ deposits in segregated accounts and therefore totally independent from those of the company itself. Investors’ money is therefore regarded as clients’ capital and cannot be affected by the broker’s financial situation or seized in the event of bankruptcy by any of its creditors. Additionally, they also require brokers to have a certain degree of liquidity to cover their operations.
In the case of an unregulated Forex broker it is not that it is directly a scam but we must be especially careful as we must be sure in whom we are going to deposit our trust and our money and we must be aware that their activity in many cases will not be supervised, we do not have a possible route of arbitration in case of conflicts and even the policies of the broker’s work can become much less transparent.
To identify whether a online broker is authorised and regulated by a particular body we must first find out in which country it is based and we can then go to the public register of the body (which we will usually find on its website) that supervises the financial markets in that country.
The main regulatory bodies at world level are the following:
– UK Financial Conduct Authority (FCA)
– National Futures Association (NFA) in the United States
– Australian Securities and Investments Commission (ASIC)
– Financial Sector Conduct Authority (FSCA) of South Africa
– Japanese Financial Services Agency (JFSA) of Japan
More info: List of Regulated Brokers
Leverage in Forex Brokers
Leverage is the financial term that refers to the relationship between equity and the credit that is invested in a transaction. Through leverage, the investor deposits an amount as collateral and his or her Forex broker offers him or her an amount of borrowed funds so that he or she can open much larger positions than he or she could do with his or her capital alone.
Therefore, by trading online with leverage you will be able to invest in large volumes with a much lower amount of money required. It is one of the most important tools in the Forex market as it is practically impossible to obtain significant profits without it, especially when you do not have significant capital.
The level of leverage is expressed as two numerical amounts exceeded by two points. A leverage level of e.g. 1:200 means that for every dollar you put in as capital you will be able to trade the market with 200 dollar. In this case the percentage of equity required corresponds to only 0.5% of the trade. If we have a leverage of 1:400 the percentage of equity required is 0.25% whereas in a leverage of 1:20 it is 5% but also the ability to make a profit is considerably reduced.
Thanks to the leverage you can invest with a small amount of money and get the effect of trading a much larger amount. It should be noted that leverage is a double-edged sword as it also carries a higher risk if the trade does not move in your favour. Therefore you should be prudent and start investing in Forex with caution and knowing the risks.
Each Forex broker can offer a different level of leverage depending on the financial instrument you choose or even allow you to choose it yourself (up to the limit set by your country’s regulations).
In Europe, for example, the leverage available to retail clients varies between 1:30 and 1:2 depending on the volatility of the underlying asset:
1:30 for major currency pairs.
1:20 for secondary currency pairs, gold and major indices.
1:10 for commodities other than gold and for secondary indices.
1:5 for shares and other securities.
1:2 for the cryptocurrencies.
These limits do not apply to professional clients or brokers operating from countries outside the European Union.
Forex Broker Commissions
The most important commissions, because they have a greater impact on our trading, are those that come from the purchase and sale of financial instruments. As you can see, the size of the trade (amount of money to be invested) and the number of trades we launch (the more trades the more commissions applied) have a direct impact on this type of fee.
The spread is the difference between the purchase price and the sale price of a financial instrument. But what does this mean? Are there two prices?
The market price is only one. However, the Forex broker offers the trader two prices: one to buy and one to sell a certain currency pair.
Buying is always more expensive than selling. Most Forex and CFDs brokers get their fees this way.
If we were to open and close a trade immediately (both a long and a short position), without causing a price fluctuation, we would lose the difference between the two prices.
On some trading platforms we will see the buy price and the sell price as “bid” and “ask”. These are the English terms used to indicate the bid price and the ask price:
The Bid is the price offered to sell the currency pair or financial instrument.
The Ask is the price offered to buy the currency pair or financial instrument.
Therefore, the Ask will always be a little more expensive than the Bid. As we have mentioned, the difference between both is the Spread.
When we speak of fixed spreads we are referring to the fact that, although the price fluctuates in the market, the Spread remains constant in that currency pair.
This means that if the spread is 3 pips, the price can move up or down. The “bid” and “ask” will fluctuate, but the margin of difference between them (the Spread) will always be the same (i.e. 3 pips).
On the other hand, most Forex brokers offer variable or also known as floating spreads. The spread between “bid” and “ask” varies depending on market conditions. It can be 3 pips, for example, at one time and 1 pip at another time, for the same currency pair. Depending on the liquidity in the market at a particular time, a higher or lower spread will be applied.
Fixed fee per transaction
In addition to the spread commission seen in the previous section, it is possible for the Forex broker to charge a fixed amount for opening and closing the position (fixed commission). Sometimes they can even apply both types of commission at the same time (Spread plus fixed commission).
Most forex brokers usually apply only the spread but there are others, especially ECN brokers, who are more oriented to traders trading in larger volumes who choose to offer much lower spreads (from 0.0 pips) but compensate with a fixed commission each time a trade is made.
Swap or Overnight Funding
It is also called a swap or “overnight funding” because the commission charged by the Forex broker is charged on trades that are kept open overnight. This is the cost of financing the money the broker lends us for leverage and is settled on a daily basis. If we carry out intraday trading, opening and closing all our positions before the end of the market day, this commission will not be applied.
In cases of positions involving several days (even in the medium or long term), it must be taken into account because it will impact on the outcome. The longer the duration of the position, the higher the commission will be as a result of the sum of each day.
In the Forex market, if the swap is a credit when selling a currency, as it is a charge when buying the other currency that makes up the pair. A long trade in the EUR/USD involves buying the euro and at the same time selling dollars in the same amount. When the trade is short, the sale is in the euro and the purchase is in dollars.
When a currency is sold, the interest rate is charged (because it is borrowed). When you buy it, you pay it to us (because we have it in our possession). Better explained: We will pay the swap of the sold currency and we will be credited with the swap of the bought currency. The result is that the difference between both swaps will be the commission to be applied. This is the reason why this commission can mean a credit (when the Swap in our favour is higher than the Swap to be paid), which will be reflected as a benefit of our operation.
Commission for cash withdrawal
Generally there is no commission when depositing but when withdrawing the Forex broker can apply its own commission. Not everyone does or can do this for some means of payment and not for others. This, as in other previous cases, should be checked on the broker’s website and in the conditions of the contract (you should always ask if in doubt).
Also, regardless of the broker, there will be payment methods that will not charge you anything and others that may apply some commission outside the broker for sending or receiving money (for example some electronic payment methods). This will vary depending on the payment method you use to deposit and withdraw money from your trading account. You should check the terms of the payment method you are going to use to see if another method might be better for you.
Foreign exchange commission
A trading account is denominated in a specific currency. In most cases, forex brokers allow us to deposit funds in several of the most common currencies (euros, dollars, pounds sterling, etc.). In other words, the account funds may or may not be in our local currency.
Ideally, the trading account should be in the local currency, as not being in the local currency will result in a currency conversion each time funds are deposited or withdrawn and will be at the expense of the exchange rate between the currency the account is denominated in and our local currency plus the commission differential applied by the broker.
How to choose a Forex broker?
There is currently a wide range of Forex brokers offering their services to investors around the world and their number is increasing. It is becoming increasingly difficult, especially for beginners, to appreciate what the differences are between them and how to choose the right one. The most determining factors when choosing the best Forex broker are
Reliability of the Forex broker.
The factor we consider most important when choosing a Forex broker is that it is a reliable company. The online broker will be in charge of receiving our money and executing the operations we request with it. That is why it is essential to choose a serious, transparent and professional broker.
One of the means we have to assess the reliability of a broker is to check whether it is a regulated broker and which body is supervising it. A regulated broker is subject to a series of rules that ensure the protection of investors, the solvency and security of the funds and the correct marketing, information, transparency and development of its activity.
Another very useful way of analysing the reliability of an online broker is to use customer opinions that can easily be found in forums, blog comments and Internet pages. When evaluating these opinions, you must bear in mind that it is much easier for someone to publish negative opinions of a broker when faced with a bad experience (often caused by ignorance) than to find positive opinions, but even so, it is often useful to see common patterns of behaviour and practices that the broker usually carries out.
You should also check the broker’s website thoroughly before registering a trading account. A transparent Forex broker that publishes detailed information on its trading conditions, provides documentation to resolve your doubts, has implemented contact and complaint procedures in the event of any incident will always be more recommendable than one that only shows you its goodness but hardly gives you details of its conditions. Do not hesitate to contact the customer service department for any detail that is not clear to you and you will also be able to check the degree of response, speed and quality.
Minimum deposit, size of the operation and available leverage
Forex brokers can offer one or several trading accounts. When they give the possibility of several accounts it is because each one of them generally improves the trading conditions of the previous ones but it is usually in exchange for a higher minimum initial deposit requirement. Nowadays the deposit is usually no longer a barrier to start trading as in most accounts you can start trading online with deposits from $100 or even less. However, the more budget you have to invest, the better conditions you can get.
Another factor is the minimum size allowed for operations: For example, a lot is a standard amount for trading a financial product. In the case of the Forex market a lot represents 100,000 units of the currency you want to buy or sell. In order for retail investors with little capital to participate, many Forex brokers choose to offer mini lots (equivalent to 10,000 units or 0.1 of a standard lot) or even micro lots (equivalent to 1,000 units or 0.01 of a standard lot). Therefore the minimum allowable trade size is another factor to consider when choosing an online broker.
Something similar happens with the leverage, the instrument that will allow you to invest with a greater amount of money but only providing a small part as guarantee. Let’s assume that we have 1:30 leverage for a currency we want to invest in. With this level we can invest and obtain the benefits of trading with for example $3,000 only needing to provide $100 as collateral. This is a very useful instrument for investors with little capital but it also carries a greater risk as in the event that the trade goes against you it will generate losses for the whole of the trade. Even so, the benefit you could obtain with a small capital without leverage would be very reduced and therefore it is a fundamental instrument. This is why it is also a factor in choosing the most suitable online broker for you. The leverage available will also depend on the regulation to which the broker is subject in order to offer its services in your country. For example, in Europe, the United States or Japan there are important limitations on the maximum leverage that a broker can offer to retail clients. In other countries or regulations there are no such limits.
Trading platforms and strategies allowed.
Another very important factor is the trading platform with which we are going to invest. While for a beginner the most important may be the maximum possible simplicity of the platform to help you understand how to invest and take your first steps, for a more experienced trader it may be necessary to assess other aspects such as the functionalities available, speed, instruments to help you analyse the market and make your trading decisions,… Forex brokers more oriented to beginners tend to offer their own trading platforms while those oriented to more experienced profiles tend to offer powerful platforms such as MetaTrader 4 (List of brokers with Metatrader 4 platform), MetaTrader 5 (List of brokers with Metatrader 5 platform), cTrader,..
In addition to the platform, you will need the online broker to enable the strategy you are going to use. For example, if you are going to invest with an automatic trading system based on Expert Advisors, you need (in addition to the MetaTrader 4 type platform that supports the programming that these systems have) for the broker to allow its use. In the case of other strategies such as scalping (a common way of trading for daytraders that consists of operating in a very short term, opening and closing operations after a few minutes or even seconds) not all Forex brokers accept these strategies.
Forex broker execution type.
When choosing a Forex broker, you should also look at the type of execution it provides. Basically, we can divide online brokers into 2 main types according to the execution of orders they perform:
– Market Maker Forex Brokers (also known as “market makers”) are those where trading is not done directly on the market but at the broker’s own trading desk (Dealing Desk). Market maker brokers create an internal market for their clients and allow them to buy or sell at any time without having to wait for a reverse transaction to take place. In the event of not finding that reverse operation, it is the broker itself that acts as the counterpart of the operation. For this reason, on most occasions there can be a conflict of interest between the broker and his clients. Due to this operation it is especially necessary in the case of Market Makers to work with reliable, regulated and professional brokers.
Most of the brokers we can find are of this type and among those who also offer direct execution in the market there are also some who operate their most basic trading accounts as Market Makers. The main advantage of market makers is usually their maximum availability to execute the trades, without price re-quotes and with more stable quotes. For these reasons they may be more suitable for beginners or for trading strategies that benefit from these advantages.
– STP or ECN Brokers (Electronic Communication Network) type are those who act solely as intermediaries for their clients’ operations in the market. This type of online broker interconnects with the main providers of liquidity worldwide (such as banks, financial institutions, other brokers,…) and obtains the best buy and sell prices available at any given time. They do not have a trading desk (Non Dealing Desk) and there are no conflicts of interest with their clients as they never act as counterparties. For this same reason they usually allow any strategy (scalping, hedging, automatic trading,…). ECN brokers generally offer lower spreads than market makers but these prices tend to suffer greater fluctuations and sometimes have to be re-quoted before the orders are executed. They are recommended for more experienced traders or those whose trading strategy requires it.
Spreads and commissions.
As we have seen previously, the spreads can vary quite a lot depending on the type of Forex broker (market maker or ECN) and are different for each investment instrument (it is not the same for currencies, it even varies depending on whether it is a heavily traded or a lesser volume currency pair). Depending on the instrument in which you are going to invest you should see the conditions of each broker and compare them with others when choosing which one you are going to work with. If you are a beginner, it is better to worry about the rest of the factors we have mentioned than to look for the broker that offers you the lowest spread.
Customer service and training.
Finally, another determining factor is the customer service offered by the broker. Especially if you are a beginner, you will need someone to solve your doubts (which will surely arise). Look for a Forex broker that has good customer service, fast response and professional. Nowadays most of them give support by phone, e-mail, skype, online chat, call back,… You can try this service before registering with a broker and see how they work in this way.
Regarding language, nowadays most Forex brokers offer their services internationally and therefore handle several languages. They have clients in countries all over the world where the Forex market is very popular such as
- Southeast Asia: Thailand, Malaysia, Singapore, Vietnam, Indonesia, Philippines,…
- In the Middle East: Saudi Arabia, Bahrain, Qatar, United Arab Emirates (Abu Dhabi, Dubai,…), Kuwait,…
- In Europe: United Kingdom, Germany, Netherlands,…
- In East and South Asia: China, Japan, Taiwan, India,…
- In Africa: South Africa, Nigeria, Kenya, Senegal,…
- In Oceania: Australia, New Zealand,…
Any Forex broker offers support in English and in most local languages where their clients are located.
Many online brokers choose to assign a manager to each client so that you have direct attention with a person in charge of advising and helping you in your first steps. Almost all brokers in the market also offer free training to their clients: manuals in ebook format, complete courses, books, face-to-face seminars, webinars and much more.
One demo account is a trading account type. The most popular Forex brokers offer this service. It allows you to test the services of the broker and the trading platform by trading with the same conditions as in a real account but with virtual money, that is, without putting your capital at risk. Both profits and losses in a demo account are applied to a virtual balance that you have available since the account was opened.
Some Forex brokers offer unlimited demo accounts in terms of time of use, others limit it to a certain period of time, for example 30 days. In any case, before starting to work with a broker with a real account, it is advisable to first open a demo account and see if it fits your needs and the trading platform is comfortable for you.
Who are the best Forex brokers?
After having tested and analyzed numerous online brokers, in the comparison table at the top of this page you can see what we consider to be the best Forex brokers to start investing in the most exciting financial market in the world: the currency market.