What is a Forex Broker?

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Introduction

Historically, financial assets such as stocks, bonds, commodities, and currencies have experienced alternating price increases and decreases. These fluctuations provide market opportunities for traders and investors looking to maximize their assets. One of the most critical steps in getting the most out of the financial markets is finding a broker that best matches the trader’s personality and financial goals. Bearing that in mind, we decided to discuss the basic concepts of choosing a forex broker and then present the eight best forex brokers for beginners.

What is a forex broker?

A forex broker, also known as a retail or currency-trading broker, is an intermediary who buys and sells currency pairs for a commission. A broker can be viewed as a financial services provider or asset seller. Although the term’s origin is obscure, it is believed to come from Old French. Since the beginning of the modern business era, the role of the broker has been evident in equities, commodities, derivatives, and even insurance and real estate markets. Moreover, until the dawn of the Internet age, most brokers worked over the phone. Under this broker-backed system, new traders faced many barriers. The main ones were the exorbitant prices of the services, the high account minimums, and the complicated routing of orders.

Internet and Forex

Together with the advent of internet technology, many brokers enabled their clients to access accounts and trade through electronic platforms and computer applications. As a result, remote trading was born and hundreds of online forex brokers sprang up. In the past, brokers were considered a separate profession, usually working in a particular institution named brokerage house. After that, online forex brokers became increasingly popular and helped to facilitate trillions of pounds worth of daily foreign currency market turnover.

Must-know Tips to choose a forex broker

When looking for a reputable forex broker, take your time to make sure your money and transactions are handled appropriately. All U.S. Forex brokers are required to register with the National Futures Association (NFA), a self-regulatory government agency created to ensure transparency. The NFA website can help you verify the broker’s compliance and look for any complaints or disciplinary actions that may affect your final decision. When opening a forex account, the security of your funds and private information is more important than anything else, as brokers can be hacked or bankrupt. Unlike stockbrokers, whose client funds are protected by the Securities Investor Protection Corporation (SIPC) in case  of a broker’s closure, U.S. forex brokers provide no account protection.

2008 Financial Crisis

Regulatory capital requirements increased significantly after the 2008 financial crisis, but that did not stem the wave of bankruptcies in 2015 when the Swiss franc plummeted overnight. Many accounts dropped into negative balances in minutes, possibly incurring additional liability, while those that survived lost everything when the broker shut down. Therefore, potential clients should stick to the most reputable brokerage firms, preferably those associated with large banks or respected financial institutions. Before giving money to a broker, check their funding and withdrawal procedures. Some require a long waiting period when you invest by check or wire transfer, while others charge higher fees when you withdraw funds or close your account. Customer service should provide easy access to help and trading desks via chat, phone, and email. Look for 24/6 coverage, which means you can contact the broker anytime from Sunday afternoon to Friday afternoon in the US.

Is Forex trading suitable for beginners?

Forex trading is a complicated task and may not be for everyone. Whether forex is right for you depends on your financial situation, goals and level of investment experience as a beginner. beginners should generally proceed with caution  since most forex traders lose money. Also, leveraged forex trading, like CFDs or otherwise, is traded from a margin account, which means you can build up a negative balance and lose more than you invest. It is always a good idea to try out a free demo account to familiarize yourself with the software before risking your real money. Many beginners start with a small amount of money they can afford to lose to build a consistent trading record.

Is forex trading profitable?

Most traders lose money. Therefore, to make money trading Forex, you need to have a trading strategy that focuses on identifying trading opportunities and calculates the optimal trade size relative to your balance. In addition, the trades must determine target risk and profit levels using a stop-loss order and limit. That way, you have a plan for when you exit the trade, whether it is a loss or a profit. To be successful in trading, all you have to do is keep your average losses lower than your average profits.

Risk and Forex Trading

One of the reasons many traders lose money is that they take on more risk than they can afford. Many traders view investing as gambling and their risk is uncontrolled or unbalanced. If you want to increase your chances of trading forex profitably, consider  it as an investment by limiting your risk versus target profit on each trade. Also, look for trading opportunities that are most likely to realize their profit potential – although they may be harder to find, sometimes it is better to wait for the right opportunity than to jump into the market just because it is there.

A Few valuable terms for beginners

At first glance, Forex trading can be complicated due to some fancy terms that you still need to understand. So let’s look at some of the most important terms you may encounter while trading.

  • Spot Forex

This means buying and selling (i.e. exchanging) a real currency. For example, you exchange your USD for EUR, then you will later exchange EUR for USD when the dollar appreciates. This way you get more money at the end of the transaction.

  • Spread

The spread is the difference between a currency pair’s bids and ask price. Regarding the relationship between commissions and spreads, you will find one common characteristic: The difference in price is minimal for common currency pairs like USD/EUR and substantialfor exotic currency pairs. To profit from a forex trade, your spread must be higher than the commission you paid on the currency pair.

  • Pip

Pip” is an acronym for percentage in point or price interest point. A pip is a basic concept of foreign exchange (forex). Forex traders buy and sell a currency whose value is expressed against another currency. Movement in the exchange rate is measured by pips. Since most currency pairs are quoted to four decimal places, the smallest total unit change for these pairs is one pip.

  • CFD

A contract for difference (CFD) is a contract between a buyer and a seller that requires the buyer to pay the seller the difference between the asset’s current value and its value at the time the contract was entered into. CFDs allow traders and investors to profit from price movements without owning the underlying assets. Therefore, the value of a CFD contract does not take into account the asset’s underlying value: only the price change between the trade entry and exit.

  • Margin

Margin is essentially the amount of money that a trader needs to put forward in order to place a trade and maintain the position. Margin is not a transaction cost but rather a margin by the broker when a forex trader opens a position.

The top forex brokers for beginners

Here we present and explain some forex brokers for beginners. Note that this list is not a complete guide; it is designed to give you a starting point for knowing what features to look for and how they relate and differ. 

1.Plus500

Plus500 is a world-renowned brand offering an easy to use trading platform for online traders as well as access to share trading and a comprehensive selection of CFDs. The broker offers clients in over 50 countries access to an extensive product line of CFDs on many instruments, including forex, stock indices, individual shares, commodities, ETFs, options, and cryptocurrencies (availability subject to regulation). Plus500 is also the first broker to introduce a Bitcoin CFD in 2013. Additionally, the broker offers access to CFD trading options on many markets. Plus500 is aims at clients who are looking for access to a wide range of financial markets with low trading costs and a simple and functional platform on which to place their trades.

ProsCons
More than 2,500 major financial instrumentsDoes not accept US customers
Easy-to-use platformLimited  customer service

2. XTB

The X Trade Brokers (hereafter “XTB”) is registered in Belize and offers traders a comprehensive list of financial services. The company was founded in 2002 and its financial regulator is the Belize International Financial Services Commission (IFSC). The broker has offices in Spain, Poland and the UK and national financial supervisory authorities validate and regulate this broker. The XTB is intended to work with European investors.

ProsCons
minimum deposit – $1;Limited product portfolio
Regulated by FCSno PAMM accounts

3. AvaTrade

Founded in 2006, Avatrade is part of the AVA group companies and is one of the oldest online brokerage firms. It has become one of the leading international Forex and CFD brokers. It has four offices in Australia, Japan, Ireland, and the British Virgin Islands. Regulated on 5 continents, the forex broker offers its clients sophisticated trading solutions, regardless of the knowledge or experience, by offering the possibility of entering the market through numerous, adaptable platforms, tools, and options.

ProsCons
Wide range of trading platforms and competitive trading conditionsNo bonus for EU based clients
High quality customer supportLimited Forex and CFDs trading instruments

4. IG Group

Founded in the UK in 1974, IG is one of the largest CFD brokers in the world. Several bodies around the world, including top-tier regulators such as the UK’s Financial Conduct Authority (FCA) and Germany’s Federal Financial Supervisory Authority (BaFin), regulate it. IG Group is listed on the London Stock Exchange. IG is safe because it is listed, discloses its financial information, and is monitored by top regulators. I.G. offers a powerful and affordable platform, competitive fees, strong regulatory licenses, and a well-done education section.

ProsCons
powerful and affordable platformSlow customer support
Low forex feesHigh stock CFD fees

5. Switch Markets

Switch Markets is a new broker that entered the OTC market in 2019. It is based in Australia but operates internationally. The Australian Securities and Investments Commission (ASIC), a globally respected financial regulator, regulates the Australian arm. Switch Markets International PTE Ltd is an authorized representative of its parent company, Royal ETP LLC, which is based in St Vincent and the Grenadines.

ProsCons
Regulated by ASICUS clients not permitted
Tight spreadsNo customer support during weekends

6. Videforex.com

VideForex is an international broker that allows traders from all over the world to operate in the Forex market. The company offers customers more than 100 tools, ways to receive passive income, as well as three types of accounts that differ in function. VideForex claims that its activities are regulated and users’ personal data is protected.

Proscons
24/7 live video chat supportLacks educational materials for its clients.
Copy tradingInactivity fee

7. eToro

eToro is a well-known Israeli fintech company and social trading broker founded in 2007. It is currently one of the best Forex brokers, and beginner traders use this broker. It offers an easy-to-use platform and low CFD commissions, yet sets itself apart from the competition as a pioneer in copy trading.

ProsCons
easy-to-use platformHigh non-trading fees
Commission-free stocks and cheap CFDsPoor customer service

8. Oanda

Oanda is a US-based forex broker founded in 1996. It is privately held and therefore not listed on any stock exchange. Oanda operates via several entities worldwide and is regulated by top-tier authorities, such as the US Commodity Trading Futures Commission, the National Futures Association (CFTC) and the UK’s Financial Conduct Authority (FCA). The company has several notable accolades to its credit, including a victory in the category “Best Forex Trading Technologies” from the UK Forex Awards, “Best Trading Platform” from FX Week, as well as “Best Customer Service” from the US Foreign Exchange Report.

ProsCons
Minimum deposit from 1 dollarLack of bonus programs.
Easy-to-use platformSlow customer service

The bottom line

Forex trading is exciting, but it can come with a high level of risk. Nevertheless, a good broker can help you navigate the turbulent markets and implement your investment strategy. That’s why it’s especially important to find a broker that best matches a trader’s personality and financial goals. In this article, we try to answer questions that beginners may have.

Reference

https://www.wikijob.co.uk/

https://55brokers.com/forex-brokers-for-beginners/

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