Table of contents:
- 1 Trading offer
- 2 major currency pairs or majors
- 3 Minor currency pairs or minors
- 4 Exotics
- 5 Forex trading with leverage
- 6 Additionally: Shares, CFDs and options
- 7 Reliability and security of the Forex broker
- 8 Trading platform
- 9 Free demo account
- 10 Customer Service
- 11 Forex costs: spreads and fees
- 12 Conclusion
Trading with foreign exchange on the stock exchange is only possible via a Forex broker. He is the interface between you – the private trader – and the foreign exchange market. With the multitude of providers, choosing the right broker can be a challenge, especially for beginners. It is all the more important to know what should be considered in a Forex broker comparison.
The following points will help you find the best broker for your individual trading needs and strategy.
A good Forex broker is characterized by a handsome selection of tradable assets. As a rule of thumb, he should have 50 or more currency pairs in his offering, sometimes:
major currency pairs or majors
In the case of so-called majors, the US dollar is always on one side – either as the trading or price currency. As the name suggests, they are the most commonly traded pairs in the Forex market. Usually the majors have the lowest spread and the greatest liquidity. The most traded pair is USD/EUR with a daily trading volume of 30% of the total forex market.
Minor currency pairs or minors
Currency pairs that do not include the US dollar are called minors. They are derived from the three most important currencies besides the US dollar: the British pound, the euro and the yen.
Exotic currency pairs are composed of a main currency and another currency of an emerging or strong smaller economy such as Singapore, Hong Kong or a European country outside the euro area.
Because these markets lack liquidity, trading costs are often higher for exotic currency pairs. As a result, they are traded less frequently than the major and minor currency pairs. Nevertheless, they are indispensable as an instrument when, for example, there is little movement in the majors and minors and at the same time volatility is very high, especially in the exotics.
Forex trading with leverage
Leverage plays an important role in foreign exchange trading. Here, the broker provides you with additional capital which you can invest in trading. With a leverage of 1:50, you invest an additional 50 dollars of capital when you bet one dollar yourself. This increases your chance of higher profits, but also the risk if you make a loss. Some brokers offer a maximum leverage of 1:50, while other Forex brokers offer much higher leverage: At Markets.com, you can expect 1:200 leverage, while ETX Capital offers 1:400 leverage for Forex trading. XM.com offers the highest leverage in Europe, with a maximum leverage of 1:888.
Of course, the assets offered by a good Forex broker are not limited to foreign exchange. Popular investment instruments also include shares – the classic among trading transactions -, Forex CFDs or contracts for difference and options. Which form of trading you ultimately choose is entirely up to you: Would you rather have lower returns and greater security, or are you one of those traders who prefer higher returns but also accept a higher risk?
Reliability and security of the Forex broker
Since a lot is at stake and above all your money, a serious Forex broker is of course essential. First of all, find out how long the Forex broker has been active on the market. Providers who have established themselves in the market over many years may be a better choice than new providers who lure with windy promises.
But not only the date of foundation decides on the seriousness of the Forex broker. The regulation by a financial supervisory authority promises a minimum of security, because the authorities check the business methods and balance sheets of the Forex Brokers annually:
- For Forex brokers based in Germany, the BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht) is the permissible supervisory authority.
- In Great Britain the FCA (Financial Conduct Authority) and the PRA (Prudential Regulation Authority) are responsible.
- In the USA, the supervisory authorities are the CFTC (Commodity Futures Trading Commission) and the NFA (National Futures Association).
- Many of the Forex brokers operating in Europe are based in Cyprus for tax reasons and are regulated there by CySec (Cyprus Securities and Exchange Commission).
If your Forex broker is regulated by one of these authorities, you can usually be sure of the integrity of the provider. With a broker regulated by the Cypriot authorities, a certain level of security is also guaranteed, as you are subject to EU law there. Although regulation does not provide complete security, at least it increases your chances of getting your money in the event of the Forex broker’s insolvency or other misconduct.
In addition to the regulatory authority of the broker, you should also find out the amount of deposit insurance. In case of insolvency, the state may step in and your money is protected in the range of EUR 20,000 to 100,000. One hundred percent security for your capital is only possible if the broker is a member of a deposit protection fund.
The trading interface used is also significant. If you prefer to use a browser, look for a provider that offers a sophisticated web-based Forex trading interface. Since you spend most of your time trading with the charts and order entries of the trading platform, this is essential. Also, there should not be long execution times on the part of the broker, since in forex trading even short time spans can decide between success and failure.
However, there is also a choice of special software available, which usually has more functions than a web interface of the broker. However, you should find out in advance whether your broker supports this application. For example, the international online trading brokerage house GKFX provides Forex traders with a range of technologically leading trading platforms. These offer you both flexibility and mobility regardless of whether you are trading from your desktop, web, mobile or tablet.
Probably the most famous and intuitive Forex The trading platform is MetaTrader 4 (MT4), which is available as MetaTrader 4 Web for all common operating systems and browsers. Another web-based trading solution is SIRIX Web, which allows you to trade from wherever you are. If you want to manage several MT4 accounts at the same time, we recommend the Forex trading platform Multi Terminal.
The trading platforms just mentioned provide you with interactive charting, real-time quotes or, for example, a wide range of tools for technical analysis. You also have the option of automated trading or copy and social trading.
Free demo account
Fortunately, most Forex brokers now offer their clients a free demo account. So take a look at the Forex Broker Comparison to see exactly what the conditions are. Ideally, you should have access to an unlimited demo account, which you can use as a trader without any time limit.
A demo account is a great advantage for traders who are planning to enter the foreign exchange market as well as for advanced traders. Beginners have the opportunity to take their first steps on the trading floor, to understand the connections in trading or to understand the principles of risk management. New clients can get to know the in-house trading platform in this way. Depending on the trading platform, order types, indicators and chart formations are different and as a trader you must be able to use them quickly. Brokers such as Lynx or Interactive Brokers also offer their customers training on the demo account.
Last but not least, experienced traders also use unlimited demo accounts to develop and test new strategies without risk. The prerequisite for this, however, is that the demo account has a real-time chart (live account!) – at the very least, however, past data should be available.
From time to time, you may have to deal with customer service because of problems with account access or deposits and withdrawals, for example. In such cases it is an advantage if the customer service is fast, friendly and solution-oriented. Since it is difficult to check in advance how the customer service will react in case of a problem, you can consult the experiences of other traders. However, contacting the currency broker before or during registration will give you a first insight into the service.
Also pay attention to the contact details at which the broker can be reached: in addition to e-mail support, is there also a live chat and a telephone number that guarantees contact with a competent member of staff 24 hours a day at best?
However, good service also includes the transfer of knowledge. Many Forex brokers offer their clients a basic framework of trading knowledge, for example through an academy or an extensive FAQ area.
Forex costs: spreads and fees
How much Forex trading ultimately costs you depends on the provider and their market model. There are basically two types of trading fees in Forex trading:
spreads and commissions.
Spreads are the difference between the buy and sell price and are expressed in pips, the unit in forex trading. Pip is the abbreviation for percentage in point or price interest point. It is the smallest possible price change of a currency pair. If the price of the major currencies – for example, the US dollar – falls from USD 1.2987 to 1.2986, then we would speak of a change of one pip. Sometimes currencies are quoted with only three decimal places. In this case, too, the change of the third decimal place by one unit would correspond to one pip.
Spreads can also be fixed or variable. If they are variable, the more liquid the underlying market is, the lower they generally are.
Commissions, on the other hand, are Forex trading costs that are fixed in advance and depend on the volume traded.
In addition, depending on the provider, further fees may be incurred: e.g. for the use of a Forex trading software, the provision of real-time prices or additional functions of a Forex trading application, occasionally also for the use of a securities account. Some Forex brokers even charge fees for deposits and withdrawals or for calls to customer support, for example.
Forex costs: Market Maker, STP and ECN Broker
There are three different categories of Forex brokers, between which there are sometimes big differences – not only in the way they operate but also in the way they charge for their services. So before you decide on a particular broker, you should be aware of the differences between them, as not all of these types are suitable for beginners. The types of brokers listed below are further divided into Dealing Desk (DD) Brokers and Non-Dealing Desk (NDD) Brokers.
Market Maker (DD)
This type of broker provides quotes for a currency pair, thereby simulating a market. It performs three tasks: Firstly, he makes the supply and demand prices for certain currency pairs available to his traders; secondly, he makes a commitment to enter into deals within a predefined framework at the prices he provides; and last but not least, he bears the initial risk of the respective position in his bookkeeping.
The market maker generates his profit from the spread between the buy and sell price. Put simply, this means The trader’s loss on a transaction is the profit of that forex broker. For this reason, the market maker’s image is rather negative, because the impression can quickly arise that he is interpreting the prices to the disadvantage of his traders. However, since the market maker provides prices in both directions, influencing a price would undermine his own position at the same time. It is therefore also to his advantage if the price works in both directions.
This type of provider can be the right choice for beginners as well as for traders with a small trading volume.
STP Broker (NDD)
STP stands for Straight Through Processing, which translated into German means “sofortige Durchleitung”. This is also the characteristic feature of this broker: he forwards your orders directly to the market – more precisely, to a bank or liquidity pool – and thus avoids conflicts of interest. Ideally, several banks will solicit the orders, after which the best available price will be executed.
This type of broker calculates both spreads and commissions. In most cases the spreads are variable and depend on the liquidity of the respective market. Even if the fixed spreads may seem cheaper at first glance, in the long run the spreads plus commissions of NDD brokers are much more lucrative. Commissions are calculated per order or traded lot. In principle, they are so low that they are only relevant for a very small trading volume.
STP brokers also offer their customers the possibility to enter the Forex market with a very low budget.
ECN Broker (NDD)
The majority of Forex providers are found in this spectrum of forex trading. The primary reason for this is the volatility of the global Forex market or its susceptibility to fluctuations in Forex rates. A correspondingly important role is also played by rapid settlement. This, in turn, is best implemented when there is no intermediary.
This requirement is fulfilled by the trading system of the ECN Broker. ECN stands for Electronic Communications Network, a special network that enables traders to communicate and participate in trading directly and reciprocally. The traders decide directly on purchases and sales and control the prices with their demand.
Furthermore, these providers usually score points with investor-friendly spreads, which is mainly due to the quick price comparison with other providers within the network. Due to the quick quotes, traders can react quickly and execute their orders.
Unlike market brokers, this type of broker never trades against the client. It is dedicated solely to sorting the orders of the traders who trade foreign exchange through their own systems.
As the spreads in force are usually very low, ECN brokers settle their orders in the form of fixed costs and fees. This ensures fair conditions for both sides.
As you can see, there are a number of aspects to consider when comparing Forex brokers. Take your time in making your decision and test different providers for the time being via a demo account so that you can experience the advantages and disadvantages for yourself. But before you do this, make yourself familiar with the most important terms when trading.
See my other posts about forex trading:
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- Best Forex Strategy For Beginners And Experienced Traders?
- Buy and hold forex trading Strategy
- Effect Of Emotions On Your Forex Trading
- Efficient Gap Forex Trading Strategy
- Forex Broker with High leverage
- Forex demo account
- Forex exchange market: Professional Guide
- Forex Signals experience – Worthwhile or not?
- Forex Spreads & Fees – How Expensive Is Trading?
- Forex Trading Correlations for more profit
- Forex vs. Futures – Strong Differences In Performance
- How Much Capital Is Required For Forex Trading? – minimum deposit
- How to avoid requotes from your Broker in Forex Trading
- How to become a Forex Broker
- How to choose the Right Position Size In Forex Trading
- How to find a good Forex Broker
- Learn Forex Trading: Instructions & Guide For Beginners
- Learn Risk & Money Management in Forex Trading
- List of 10 trusted Forex Brokers
- Martin Gale Strategy in Forex Trading
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- The 10 Most Common Reasons Why Beginners Make Losses In Forex Trading
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- the best Forex Broker: These Are The Points That Matter
- The Most Traded Currency Pairs – Guide
- The Trading History of the Pound Sterling (GBP/USD)
- The trading history of the Swiss Franc (USD/CHF)
- The Trading History of the Yen (USD/JPY)
- Trading History of the AUD/USD
- Trading History of the EURO/USD history
- Trading History of the US Dollar (USD)
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- What is Forex Trading? – Definition & Explanation
- What moves the forex exchange price | Influences of the Exchange rate
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