the best Forex Broker: These Are The Points That Matter

Trading with currency pairs has also long since become a trend among private investors. To do so, they want to open an account with a reputable and good provider. The search for a good Forex broker is not always easy. Especially prospective traders often ask themselves the question: Who is the best Forex broker for beginners? But also for advanced traders it can be a challenge to find a suitable provider. So what must your best Forex broker be able to do? While for one trader a clearly laid out website with trading tools plays a major role, for another the execution speed and spreads are important.

The currency trading

Currency trading (other names are: Forex trading, Forex trading, FX trading) refers to the purchase of a currency and the simultaneous sale of another currency. The Forex market is one of the most liquid and largest financial markets in the world, where companies, organizations and private customers make transactions every day in the form of exchanging currencies. The Forex market is not located on a stock exchange or in a central location, but is open continuously from Sunday evening to Friday evening.

Forex trading offers traders the opportunity to take advantage of the price fluctuations of different currencies. Currencies are always traded in pairs, for example the Euro and the US Dollar (EUR/USD). You speculate on whether the price of a particular currency will rise or fall against another currency and open a position accordingly. Many brokers now offer online trading of foreign exchange. While most brokers offer the most popular currencies (majors), some also offer more exotic currencies (minors) for trading.

So when looking for a broker, traders should consider what is important to them. A provider who wants to be the winner of our Forex Broker Test should have the widest possible currency offering.

How does Forex trading work?

When trading Forex, traders always speculate on whether the price of the first currency (base currency) will rise or fall against the second currency (counter currency). For example, if a trader believes that the EUR/USD will rise against the US dollar, he goes “long”. In other words, he buys the currency pair. However, if he assumes that the euro will fall against the US dollar (or the US dollar will rise against the euro), he will go “short”. He sells the currency pair. If the trader is right (if he has gone long in the EUR/USD and the Euro has risen against the US dollar), then he has made a profit. But if the trade goes to his disadvantage, he has made a loss accordingly. The trader can trade Forex with leverage and thus significantly increase his potential profit, but also the potential loss.

WHAT DOES MARGIN MEAN?
Because Forex is traded on margin, the trader only deposits a percentage of the amount he wants to trade. Margin is 3.3 percent for retail investors, which can be called 1:30 leverage, as the value of the position is 30 times the value of the deposit required to place the trade. When trading on margin, traders should always remember that their profits and losses are based on the entire value of the position and not just the portion deposited by the trader. The own capital is always subject to a risk of loss.

What is a Forex broker?

There are numerous brokers worldwide, which differ particularly in quality, type and regulatory design. It is important for traders to take great care when choosing a provider. Brokers trade financial instruments such as commodities, commodities, CFDs and foreign exchange. The latter brokers are called forex brokers. The difference between brokers and traders is that brokers always trade for the account of others.

THE BROKER IS NEEDED FOR THIS
If you want to buy and sell financial products, you need a broker with the approval of a financial supervisory authority. This is because private individuals cannot directly place buy and sell orders on the stock exchange. To maintain quality standards and ensure effectiveness, it was decided not to grant all private individuals direct access to the stock exchange. It is also sometimes not easy for companies to gain access to stock exchange trading. They have to meet certain conditions and requirements for this.

However, this is not limited to the stock market. Not every financial product is traded on the stock exchange. The foreign exchange market, for example, takes place off-exchange, i.e. in so-called OTC (Over The Counter) transactions. Another term for this is interbank trading. The name is due to the fact that foreign exchange transactions used to be carried out between banks. Only the financial institutions had direct access to trading. The broker’s task was therefore to provide private traders with access to the markets, regardless of whether they traded on the stock exchange or over the counter.

The broker is the interface to the world of financial markets.

What types of brokers are there?

Brokers can generally be divided into five types:

  • Dealing Desk Broker
  • Market maker
  • ECN Broker
  • STP broker
  • NDD Broker

The differences are usually found in the area of spreads and in the way the order is executed.

DEALING DESK BROKER
Every order that a trader places with a dealing desk broker goes over the trading desk of the trading department. From there, the trader’s order is then forwarded to the stock exchange or executed in OTC transactions without the intermediary of the stock exchange – for example in interbank trading. In the latter case, the broker is usually the market maker, for example in CFD trading.

MARKET MAKER
A market maker does not forward customer orders directly to the financial market. In this case, the broker sets his own prices. The market maker often tries to execute the orders within his own system. This means that he sets the price of his own customer against another. Thus the order often does not leave the system of the broker. It can happen that the market maker “hedged” the customer order, i.e. he enters an offsetting transaction. This means: if the customer loses, the broker wins, and vice versa. The price structure here is often characterised by fixed spreads.

ECN, STP and NDD Brokers

ECN BROKER
The abbreviation ECN stands for “Electronic Communication Network”. Here, customer orders are immediately forwarded to the interbank market. The price structure is based on a commission and on flexible spreads of the interbank market. It results from the current fluctuation margin of the market. There is no dealing desk in between. The best way to find out who is the best ECN Forex Broker is to compare them at day-traders.net.

STP BROKER
The abbreviation STP stands for Straight Through Processing. An STP broker forwards customer orders to an exchange trader, a so-called liquidity provider, for execution. This is often a bank that has direct access to the interbank market. The customers’ orders are then executed on the interbank market.

NDD BROKER
NDD stands for No Dealing Desk. This refers to brokers who forward their customers’ orders directly to the interbank market. These are therefore STP and ECN brokers. The advantages and disadvantages for the traders are that they receive the spreads of the interbank market directly.

Which points are particularly important when choosing a broker?

What should your “best Forex broker” be able to do? When it comes to choosing a broker, you should pay particular attention to the following points:

1.EASILY ACCESSIBLE CUSTOMER SUPPORT
First of all it is important that the trader can reach the support within the trading hours or at any time. In addition to good accessibility, it is also important for many traders that they can reach German-speaking staff at their broker.

2.EXTENSIVE PRODUCT RANGE
If you are looking for a broker, you should consider which instruments you want to trade and consider the selection of providers according to this aspect. A good broker provides users with an extensive selection of tradable products and thus enables you to implement a wide variety of trading strategies.

3.SECURITY AND REGULATION OF THE BROKER
In a broker settlement, special attention should be paid to the regulation of a broker. A reputable provider is always subject to the control of the financial supervisory authority responsible for it. The latter has the task of monitoring the activities of the brokers. If there is no information on regulation on a broker’s website, the trader should refrain from cooperation. A good broker should also have a deposit insurance. This protects the customer’s deposits in case of the broker’s insolvency.

Trading platform and order execution

Furthermore, the trader should ask himself what demands he makes on the trading platform of a broker. Is he satisfied with the standard software of the broker, does he want to use a special charting software and trade directly from the chart? Or does he want to use a software and then enter the orders on the broker’s platform? Whichever option a trader chooses, he should in any case pay attention to a good data feed. It is also important that the broker provides him with sufficient data for a chart analysis. Last but not least, many traders are of course also interested in fast order execution.

SLIPPAGE
Slippage is the difference between the desired execution price and the actual order execution. Suppose the trader places a stop order at 1.3520 for a long trade in EUR/USD. For example, due to high or low volatility or poor order book keeping by the provider, the stop order is executed at 1.3515. There is a difference of five points, which reduces the trader’s trading success.

Slippage cannot always be prevented. Particularly in the case of high volatility, such as when figures are published or politically driven market movements, strong movements can occur in the market and the trader will not receive the desired execution price. However, the difference between the order and the actual execution should remain within reasonable limits.

Requotes

The so-called Requotes should also be taken into account when comparing providers. If a trader receives these from his broker, this means that the broker will not execute the trade at the price the trader would like to have and which he has entered in his order mask. Such a thing can usually happen in the context of significant announcements or news, such as the publication of certain news or figures. Usually this happens at a time when the markets are moving very strongly. The Requote then usually does not behave in favor of the trader.

In practice, the procedure is as follows: The trader presses the button to send his order to the broker. Instead of being told that his order has been executed, he is told that the market has moved so far that his order cannot be executed at the desired price, but at another price. The broker then asks the trader whether he should place the order at the new price. This is at least the case if the broker handles requests responsibly.

In addition, however, there should also be brokers who execute requests without first obtaining the trader’s renewed confirmation of order execution, usually at the worse price. A request without prior notice should be a reason to close an account with a broker. Providers who submit requests have stipulated in their General Terms and Conditions that these are permissible.

Fees at the Forex Broker

The costs and fees also play a central role in a Forex broker comparison. A top forex broker offers his customers trading at fair conditions. In foreign exchange trading, it is common practice for brokers to quote prices with the so-called spread. This is the difference between the buying price and the selling price.

Therefore currency pairs are also traded in

  • Main currency pairs or majors,
  • minor currency pairs or minors and
  • Exotics

divided. The spreads are usually small for the majors. With the Euro against the US dollar, 1 to 3 pips are usually common, depending on the time of day and provider. Yes, in fact, spreads can vary according to market conditions as well as the time of day (peak and off-peak trading hours). For example, the publication of economic data can contribute to a widening of spreads.

There are also currency pairs that have a high spread from the outset. For example, exotic currency pairs such as EUR/NOK (Euro vs. Norwegian Krone) often have a spread between 40 and 70 pips. These can even increase outside of peak trading hours and during strong market movements.

Demo Account and Live Account

  1. DEMO ACCOUNT
    Last but not least, a “best” Forex broker should also provide his clients with a free demo account. With the demo account, traders have the opportunity to test the trading offer and the functions of the trading platform without risk. In the meantime, such a test account is standard with almost all brokers. Depending on the broker, however, there are differences in the account models. For example, some brokers provide their test account with the corresponding minimum deposit independently of the opening of a real money account.

Furthermore, the demo accounts also differ in terms of their useful lives. While many brokers now provide their demo accounts for an unlimited period of time, some providers only offer them to users for a period of 30 days. It is especially important that the traders can carry out the trade under realistic market conditions. This is the only way to effectively try out new strategies.

  1. LIVE ACCOUNT
    The live account is the actual account through which the trader can place real orders. There are significant differences between the individual Forex brokers. Many brokers offer various account models, which differ in the services offered, trading costs or minimum deposit. When looking for a broker, it is important to make sure that they provide all the important information when opening an account. For beginners, the so-called basic account is usually a good choice, which can be found in many places. Depending on the provider, the minimum deposit here is usually between 100 and 250 euros.

Minimum deposit and minimum stake

The minimum deposit and the minimum stake are two important terms in Forex trading. The minimum deposit is the minimum amount that traders must deposit into their trading account when opening an account. Forex brokers, who have geared their offer towards beginners, often offer to open an account for as little as 100 euros. However, deposits of 1,000 Euros or more may be required from brokers. The minimum deposit also plays an important role. This indicates the trading volume from which the trader can place orders. Here, too, the following applies to beginners: The lower the minimum stake, the better it is for the prospective trader.

What does volatility mean?

Volatility is a term that appears again and again in Forex trading. It stands for the strength of the fluctuations of a trading instrument within a certain time. An average value serves as a basis for this. The further the values deviate from this underlying value, the more volatile a market is. Due to the large trading volume of around USD 5 trillion a day, the foreign exchange market is considered to be very volatile. In the case of significant economic or political news, extreme price fluctuations can occur within a few seconds. Thus, high volatility on the one hand provides attractive yield opportunities, but on the other hand also involves a significantly higher risk.

Why trade Forex?

Before you finally decide who is your best Forex broker, you should take a look at Forex trading in general. This offers traders numerous advantages. These include the possibility of trading with leverage (margin).

TRADE WITH MARGIN
A key feature of foreign exchange trading is leverage. This means that the trader only has to deposit a small part of his stake or pay margin to place a trade. Margins in this area amount to 3.3 percent for retail investors, which corresponds to a leverage of 1:30. Some brokers also offer higher margins for professional clients, such as 0.50 percent, which is equivalent to 1:200 leverage.

Trading on margin can mean a more efficient use of capital for the trader, as he only needs to provide a certain percentage of the total value of his position, while at the same time holding the full total volume in the market. This ultimately means that his profit potential increases significantly as the market moves in his favor. However, the loss potential also increases if the market moves against the trader.

Example: As a retail investor, you can, for example, open a position with a volume of EUR 3,000 with a position margin of EUR 100. However, you should always bear in mind that the market can also turn against you and your capital is therefore subject to a risk of loss.

24-hour market and high liquidity

Further advantages are the flexible trading around the clock (from Sunday to Friday) and the very high liquidity of the foreign exchange market.

OTC – OVER THE COUNTER
The Forex market is an OTC market. The abbreviation OTC stands for Over the Counter. This means that trading does not take place on a central exchange as is the case with indices or stocks. Rather, it can take place around the clock, anywhere in the world. Unlike in other financial markets, investors can react immediately to exchange rate fluctuations triggered by social, political or economic events. They do not have to wait for the markets to open up.

The foreign exchange markets are also subject to price fluctuations at all times. Depending on a trader’s investment strategy, various trading opportunities are available to him. However, the constant activity of the markets also means that investors should always keep an eye on their transactions and use the available risk management functions and tools.

VERY HIGH LIQUIDITY
With an average daily turnover of around USD 5 trillion, the foreign exchange market is the financial market with the most intensive trading worldwide. With many market participants around the world, who can trade at any time and any place, foreign exchange markets are more liquid than any other financial market.

Risk Management in Forex Trading

No “best” Forex broker in Germany is of any use to you if you do not have a good risk management strategy. Forex brokers usually provide corresponding functions, such as stop-loss orders, which are intended to help traders to deal with risk more consciously.

STOP LOSS
The objective of such a stop loss order is to minimize losses in the event of unfavorable market conditions. The trader sets a price at which the trade is to be closed, which develops to his disadvantage. So he generally determines what amount he is willing to risk on a trade.

TAKE PROFIT
Take profit orders work similarly to limit orders. They are also always executed at a target price set by the trader. If the market for a particular product opens at a better price than the target price, the order is executed at the better price and a possible positive slippage is passed on.

TRAILING STOP
A trailing stop loss is a cross between a take profit order and a stop loss order. Its purpose is to limit the trader’s losses when the market moves against him. If it does not move in the trader’s favor, the order moves with the trader to provide the trader with positive price movements.

GUARANTEED STOP-LOSS ORDER
Guaranteed stop-loss orders work similarly to stop-loss orders. The main difference is that in the former, a guaranteed limit is set for possible losses on a trade. This is to ensure that the trade is closed at the price set by the trader. For this, the broker charges a premium, which is due when the order is executed.

Who is your best Forex broker? You can find out at day-traders.net.

Whether you are looking for the best Forex broker for beginners or for advanced traders – there are always a few points to keep in mind when looking for a broker. Forex trading is very important for traders, because it offers them the opportunity to achieve high profits even with small money stakes through leverage. For this they need a suitable broker as a basis. However, due to the wide range of different platforms on offer, it is sometimes not easy to get an overview of the providers and their conditions in order to get a first impression of their services. A broker comparison can help you with this.

Please note the following: There is no such thing as the best Forex broker across the board. When comparing, the strengths and weaknesses of all providers should be weighed against each other. It is advisable to choose a provider that best meets your requirements and to open a demo account with them first. If everything goes well during the test phase and you are satisfied with the customer service and conditions, you can open a live account with the respective broker and start trading.

Our tip: Use the broker comparison on day-traders.net and find the right provider for your forex trading!


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