Why do people want to start trading foreign currencies on the global market that is commonly known as Forex? Some are tired of their mundane jobs where they get paid peanuts; others are thrilled by the prospect of making "easy" money on price fluctuations, inspired by movies like "The Wolf of Wall Street" or "Boiler Room," wrongfully thinking that all traders live a lavish life, driving to offices in Lambos and dining at posh restaurants. A small percentage of those who want to become Forex traders understand the complexity of this profession and are willing to devote a significant portion of their lives to studying fundamentals, analyzing charts, and sometimes making very tough decisions.
Whatever is the reason for wanting to start an adventure in the global market of foreign currencies - hopefully, it's either the first or the third reason, because if you're going to get engaged in Forex trading just for showboating, the market will punish you sooner or later - you will have to start with something, and that "something" should be picking a suitable Forex broker.
Certainly, there are tons of other things you will have to learn and experience, oftentimes, from your own mistakes and failures, but, unlike trading itself, the choice of Forex broker doesn't involve risk-taking because it usually boils down to a certain list of criteria that the broker has to meet. And to help you in this immensely important, but not woefully difficult, matter, we would like to offer you some insight into the nuances of broker selection, along with a short list of top Forex brokers that we recommend dealing with when speculating with foreign currencies. The brokers presented in this article aren't placed in any particular order because you will ultimately have to select one in accordance with your personal preferences and trading goals.
What is a Forex broker, and why do you need it to trade foreign currencies?
The foreign exchange market, or simply Forex, is the largest tradable market in the world, the overall trading volume of which is rivaled only by the credit market. Perhaps you would be shocked to find out that the capitalization of the forex market amounts to the incredible $2.4 quadrillion, with nearly $6 trillion worth of transactions taking place there on a day-to-day basis, which is only 3,5 times less than the GDP of the United States for the year 2020 that was estimated at $21 trillion. It’s hard even to imagine how many people are involved in the process of moving this vast amount of money around, and if you want to dive into this ocean of currencies, charts, orders, and, of course, profits, then you would have to get an account with a good Forex broker.
A foreign exchange broker is a company that acts as an intermediary between a trader and the market itself that also provides access to an electronic trading platform like MetaTrader 5, which is often tailored for retail traders - institutional traders prefer the Over-the-Counter (OTC) dealer networks. We understand that some people might frown upon the word “intermediary,” especially those who are involved in the crypto space because it often means that you would have to pay for the services and would like to know whether it’s possible to trade without a Forex broker.
The short answer to this question is “yes” - no one can forbid you to cut out the middleman, but you have to be aware of the downsides to this decision. The easiest way is to pay a visit to your local bank and open a couple or even several checking accounts in different currencies, including your local one. For instance, if you reside in Germany, these currencies could be EUR, GBP, USD, and CHF. Upon opening the accounts, you can transfer the monies between them through the banking application once there is a noticeable change in price. But this endeavor has the following downsides:
- The bank may have a limit on the number and the volume of operations;
- The transaction fees imposed by banks are usually quite high, so you can forget about day trading and resort to positional trading, which implies making transactions only at times of considerable price swings that doesn’t happen too often in this market since it’s not as nearly as volatile as the cryptocurrency market, for instance.
- You will have to execute each trade manually without the means to place a limit order that will be executed automatically.
- Trading without the broker will deprive you of an option to trade with leverage, which is very risky but very rewarding at the same time.
Hopefully, these arguments have convinced you that the middleman in the face of a Forex broker is a necessity if you want to utilize all options that the market offers and realize your trading potential to the fullest. However, when choosing the foreign exchange broker, you will have to be very scrupulous and picky because, despite the fact that the industry has made tremendous progress over the years, there are still a lot of disingenuous brokers or outright fraudsters. Here is our take on how to avoid getting involved with a subpar broker or even being scammed and instead get in the same boat with the broker that will provide everything you need for fruitful Forex trading.
An obedient one: see if the broker answers to financial authorities
One of the first things that you need to consider when picking the broker through which you would be trading on the foreign exchange market is the license that a given entity holds and a regulatory body that oversees its activities. We have already mentioned that the industry is still riddled with shady firms that engage in all sorts of illicit practices in the absence of supervision from a higher financial establishment. And the best way to tell the reliable broker from a fraudster is to check out whether the broker's website contains the section dedicated to licensing and regulation, which should include the number of brokerage licenses and the list of regulatory bodies that exercise control over its operations - this information may also be disclosed in the disclaimer section at the bottom of a webpage.
It's important to make sure that the broker that you are interested in is regulated by the corresponding legal entity in your country since there is no single regulatory body due to the decentralized nature of this market. Therefore, the regulator is safeguarding only the interests of traders from a particular country or territory, while traders from other places are at a slight disadvantage. Nevertheless, the availability of brokerage licenses and the compliance with regulatory requirements are the distinguishing characteristics of reliable Forex brokers that won't leave a beginner trader hand out to dry.
Such requirements would be the full disclosure of financial risks associated with Forex traders, the non-involvement in malicious practices, such as order manipulations and trading against the client - we have come across many such instances, and nearly all of them involved unlicensed brokers. And even if the broker's website does mention the license and its number, you ought to verify it by yourself by visiting the regulator's website and checking this number against its database. Don't be reluctant to do so because we have seen many instances of brokers having false licenses. However, it would be best if you also were wary of regulators that have a lax attitude towards their duties, thus lacking credibility. These regulators are often called the "paper tigers" or the "rubber-stamping offices." But first, here is the list of the strictest and the most reliable regulators that keep brokers at bay and make sure that they perform their duties towards Forex traders well:
- The United States - The Securities and Exchange Commission (SEC);
- The United Kingdom - The Financial Conduct Authority (FCA);
- Japan - Financial Services Agency (FSA);
- Germany - The Federal Financial Supervisory Authority (BaFin).
But we would also like to offer you a checklist of the no-so-reliable regulators that are known for turning a blind eye sometimes on brokers' non-compliance with the corresponding legal framework.
- CIMA - Cayman Islands Monetary Authority;
- FSA - Seychelles Financial Services Authority;
- VFSC - Vanuatu Financial Services Commission.
Obviously, if a Forex broker "boasts" that it's regulated by one of these authorities, it would be better to look for other options; thankfully, there are plenty.
Don't judge the book by its cover but do judge the broker by its website
Once you make sure that the seemingly suitable broker has an appropriate license and is in good standing with regulators, you can start digging deeper into its website, account types, available trading platforms, and educational resources in order to discover all the nuances that might influence your final decision regarding whether or not it's worthy of your trust and money. Don't disregard any of these factors because each one of them is important for your maturity as a Forex trader.
Demo account - a vital appetizer to trading
If you are a beginner trader, the first thing that you should pay attention to when deciding on the broker is the availability of a demo account. This is immensely important if you intend to become a professional foreign currency speculator and not a social media trader who posts pics on Instagram where he's staring at the screen with the charts trying to look smart and bragging about making thousands a day, while in reality, he is on tilt, speaking in poker terms. That often happens when a nascent trader starts trading Forex with real money right away without developing a viable trading strategy beforehand.
And in order to create and backtest such a strategy, as well as hone your skills in technical analysis, executing buy/sell orders, and placing stop losses, you need a demo account that allows making mistakes without suffering real financial losses.
Moreover, such an account allows the trader to acquaint himself with all ins and outs of the trading platform risk-free before getting down to real business. Bear in mind that if you don't give the trading strategy a trial run, you are likely to have big trouble when trading Forex - a good broker has to provide you with every means necessary to avoid it, including a demo account. Otherwise, the broker can't be deemed as fit for beginner Forex traders.
Live and learn - learn and trade Forex
As a beginner Forex trader, you would literally have to go back to school and study a complicated but very interesting subject called trading on the Forex market. But unlike the majority of other professions, trading isn't taught at school or any other educational establishment - it's nearly always the matter of self-tuition and experience, regardless of what different Internet "gurus" that aggressively sell their courses might say.
Nevertheless, it's a direct responsibility of every good Forex broker to provide the breadth of information necessary for a nascent trader to grasp the basics of the art of trading and even advance to the intermediary level.
Usually, a top-tier broker dedicates an entire section on its website to educational articles, video tutorials, and podcasts in order to keep its customers engaged and contribute to their professional development. The absence of an educational section means that the broker either doesn't care about enlightening its customers or that it's focused on a more experienced audience. In any case, it's good for young traders to have access to education directly through the broker, and that's one of the main things that a rookie Forex trader has to look for when picking one.
The offered spectrum of tradable currencies
Obviously, since we are looking for an intermediary for currency speculations, it's of utmost importance to find out about the number of tradable currencies available across broker's electronic platforms. It's not only the matter of more being better - it's essential to find out whether the broker affords access to the most popular and liquid Forex pairs, such as EUR/USD, GBP/USD, or USD/JPY. Also, it would be great if the broker grants access to exotic currency pairs like AUD/NOK or CHF/SGD, or volatile pairs, such as AUD/JPY, with an average volatility of 1.12% or EUR/AUD that has the average volatility of 1.07%.
The account type that fits
When it comes to Forex accounts, there's nothing too complicated or sophisticated. The majority of brokers offer three types of trading accounts, each with its own set of pros and cons. Here's a quick review of each one of them. Standard is the most common one with the value of a single lot amounting to $100,000, which is quite a hefty sum for a novice trader unless he or she wants to experiment with 100:1 margin trading, which is highly inadvisable.
The managed Forex trading account implies that the trader's funds are taken care of by a professional account manager assigned by a broker, which bears similarity with a managed stock account. By the way, if you are interested in stock trading, you can find the list of the best stock brokers here (link to the article). This particular type of Forex account is more suitable for investors who don't want to delve into the intricacies of trading and prefer to pay the professionals to grow their wealth. Besides, managed accounts require a minimum deposit of several thousand dollars, which isn't the kind of money that every beginner Forex trader possesses.
In our opinion, every novice Forex speculator should start his journey by opening a mini, micro, or cent account that affords means to handle mini lots, such as 10% of a standard Forex lot. Certainly, a trader must do this only after obtaining a considerable body of knowledge and developing a thoroughly backtested trading strategy. This type of account requires a minimum deposit of around $10 - this, of course, varies from broker to broker; some can go as low as $1 - which is attainable for everyone. But, of course, if you want to trade for a more or less decent profit, the deposit should be at least $250. That way, you can count on ripping a modest profit of 1 to 10 cents a pip on a few-hundred-pip move.
Deposits and withdrawals - what to consider when choosing a Forex broker
Nowadays, there is practically no Forex broker left that charges a fee for making a deposit to its platform simply because it's in the broker's interest to attract as many customers as possible by ensuring the ease of channeling the money from users' bank accounts to brokerage accounts. If you stumble upon the Forex broker that imposes deposit fees, abandon it right away because that is just a rip-off.
Here, there is basically one rule of thumb, which is to choose the broker with the largest possible variety of deposit methods or a method that suits you. Bank wire transfer is the most common deposit gateway, but many traders give preference to electronic payment systems like Skrill, Neteller, or Perfect Money.
When it comes to withdrawals from a Forex account, the main tip here is to ensure that the broker isn't charging a predatory commission for such an operation and that there are no hidden fees. Also, it's essential to check out the minimum withdrawal threshold because you would want to take out at least a portion of your first profit just to give the whole system a trial run. A good Forex broker must provide all-encompassing information about its deposit and withdrawal policy in a separate section of the website. The withdrawal fee, of course, depends on the chosen payment system, but it rarely exceeds 2% of the sum, or it could be a fixed amount. It's also important to consider the duration of withdrawal, which shouldn't last more than three business days if it's made to a bank account.
Trading platforms made available by the broker
Nowadays, Forex brokers offer a wide variety of electronic trading platforms, but the overwhelming majority of them, including those in the list of the best Forex brokers for beginners, provided below, grant access to the two most popular platforms on today's market, namely Metatrader 4 (MT4) and Metatrader 5 (MT5).
Both platforms were developed by the Cyprus-based company called MetaQuotes Corporations have withstood the test of time. Some brokers do offer their proprietary trading platforms, but we recommend sticking to either MT4 or MT5 because they are far more efficient and user-friendly. Beginner Forex traders should opt for Metatrader 4 because it's widely considered as an industry-standard platform and might have fewer technical issues, whereas MT5 is tailored for markets beyond Forex and has somewhat complicated instrumentation. MT4, on the other hand, has all charting tools needed for the analysis of price action and allows for all order types necessary for efficient trading, such as limit, stop loss, and trailing stop orders.
The ever-important matter of fees
If you are a beginner Forex trader, we recommend choosing among online brokers and steer clear of traditional brokerage firms, because the latter charge a much higher commission for their services. There are four types of fees that you ought to pay attention to when picking a broker for trading foreign currencies, apart from the aforementioned withdrawal fees:
- The commission, which is a fixed or a floating sum charged by the broker for its services. It might depend on the trading volume that you put up in a month or over the year.
- Spread is one of the widely known Forex terms, which means the difference between the buy and the sell price, and that price gap is where the broker makes its revenue. The spread usually varies from market to market, though some brokers charge zero spread for most popular pairs. Out of our list, FP Markets, AvaTrade, and FxPro have the lowest spread for EUR/USD, GBP/USD, and USD/JPY.
Forex brokers also charge an overnight rate on leverage positions that are active for more than one day. But as we already mentioned, trading with leverage is way too risky for a beginner Forex trader because one wrong decision might decimate an entire account in a matter of hours if the markets get too volatile.
Non-trading fees include the inactivity and the account fee, usually charged once per month or a year. For a rookie trader, it would be better to go with a broker without non-trading fees or the one that charges the bare minimum.
The list of top Forex brokers for beginner traders with their brief description
Finally, we get down to the list of the best foreign currency brokers for rookies traders. We didn’t put them in any particular order because they are on the same level in categories like trading platforms, fees, and account types. Moreover, each trader who reads this article must choose the broker depending on his country of residence and the regulatory framework within which the broker operates, the matter which we have already discussed above.
FXTM
Over the ten years of its existence, FXTM has earned a reputation as one of the most reliable Forex brokers that are regulated by multiple regulatory bodies, including FCA and CySEC. It has low trading fees with a spread that rarely exceeds 0.5 pips for major pairs. The minimum deposit here is $50 - it can be made via bank transfer or electronic wallet. FXTM charges the withdrawal fee of $3, as well as an inactivity fee, but doesn’t impose the account fee.
FxPro
The beginners will definitely enjoy trading with FxPro because the process of account opening is probably the easiest among the firms featured on this list, and this particular broker accepts traders from all countries. Moreover, FxPro doesn’t charge withdrawal fees and has an average spread of 1.7 pips. The minimum deposit is $100, and there are as many as six trading platforms to choose from. The only downside to FxPro is that it charges an inactivity fee.
XM
XM has been around since 2009, regulated by multiple financial authorities: CySEC, ASIC, and IFSC. This broker demands a very low minimum deposit of only $5 and supports as many as 11 base currencies. XM has a superb education section and charges no withdrawal fee on withdrawals above $200 and no inactivity fee.
FXCM
FXCM is a multi-regulated broker that has been providing its services since 1999. It’s characterized by a good choice of accounts that can be registered within minutes, top-notch educational content, and great charting and research tools. The minimum deposit is $50. FXCM’s only downside is that it charges a high withdrawal fee when done via bank transfer.
AvaTrade
Established in 2006, AvaTrade has long earned the reputation of a top Forex broker that serves thousands of traders from all over the world. The fees here are incorporated into the spread and amount to 0.9 pips during the busiest hours. This broker doesn’t charge the account fee, but the inactivity one is there. The minimum deposit is $100 - withdrawals are free for most gateways.
FP Markets
FP Markets is an Australian FX broker that has very low trading fees, lightning-fast deposits and withdrawals, unless you intend to make an international bank withdrawal - in that case, the fees could be steep. What’s great about this broker is that it doesn’t charge both inactivity and account fees, while its spread is also at the lower end of the spectrum.
Pepperstone
Pepperstone is an ultra-safe Forex broker since it’s regulated by FCA, BaFin, and ASIC. The account opening is fast; deposits and withdrawals are free of charge. Another thing about Pepperstone is that it has absolutely brilliant customer service that will help you out in any situation. On top of that, there are no minimum deposit requirements.
IronFX
Next up is an award-winning Forex broker that offers a very broad range of currency pairs, including cryptocurrencies. What makes IronFX stand out from the crowd is the fact that it charges no trading commission for many Forex pairs. The range of deposit and withdrawal gateways is also one of the widest around.
Libertex
Over its 23-year history, Libertex won over 40 international awards for providing top-notch Forex brokerage services. Here, you can trade over 50 currency pairs using MT4 or MT5. The broker has a great demo account and a very user-friendly mobile app for those who want to trade on the go.
HotForex
Last but not least is HotForex, a highly-regulated Forex broker that is suitable for both beginners and institutional traders. It has five account types, most of which are commission-free. This broker also has a copy trading feature that might serve well for rookies who could get the chance to emulate the best traders in the business.
Bottom line
Trading foreign currencies is an exciting and rewarding journey that can last for a lifetime. But before embarking on this journey, it’s vital to choose the right companion, like Sam was for Frodo in the Lord of the Rings. Otherwise, you risk having an underwhelming trading experience that could discourage you from further development as a foreign currency speculator and deprive you of an opportunity to change your life and become financially independent. Think of a Forex broker as your helper in this tough world of finance - it has to be reliable and affordable at the same time.
In this article, we have outlined the main criteria of a good Forex broker, such as legal compliance, desire to educate the beginners, and availability as well as affordability of services to all groups of Forex traders. But the choice is ultimately yours - we simply provided our unbiased opinion about top brokerage firms without singling out a specific broker because each of them has its strong suits. Just remember, trading foreign currencies is a risky endeavor that may incur a loss of capital, and a significant loss of capital if you play around with trading on margin without mastering spot trading first. Other than that, Forex trading is all about constant learning, experience, and money management.
