You’ve decided you want to venture into the world of online trading but really haven’t got a clue where to start. You don’t want to get caught out by all the fancy jargon, and want a broker to share in the journey that won’t rip you off. We agree that finding the right broker is one of the most important hurdles you’ll have to jump over, but you also need to be sure you’ve got a basic understanding of how it all works. You don’t have to worry because there are many avenues you can travel in order to find all the necessary information. But to save you any inconvenience we’ll be sharing it here.
Over the next few weeks and included in our regular updates, we’ll be introducing you to the exciting world of Forex trading. We’ll also be sharing a top Forex brokers list, and giving you all the details of the best Forex brokers. Having a top Forex broker by your side is going to increase your chances of success, and will definitely make the whole experience more enjoyable.
The Best Online Forex Brokers
What is Forex trading? In case you were wondering
As you’ve already decided you want to try your hand at Forex trading, many of you have probably got a good idea of what it entails. But for those of you who are a little lacking in the finer details, here is a brief explanation.
When was the last time you visited a foreign country? Chances are it was a country that uses a different currency than that which you use in your everyday life. So what did you do? Because we’re pretty sure there will have been a need for some local cash. You may have used a currency exchange booth at the airport, or perhaps visited your local bank, in order to change your spending money into a currency you could easily spend.This is the most basic form of FX (Forex trading) via the Forex market.
Forex has a lot of different names, but they all basically refer to exactly the same thing. Whether you’re trading in the FX market, the foreign exchange market, foreign currency market, currency market or simply Forex or FX, these are all the same form of investment that is undertaken by a whole range of people. Banks, businesses, governments, individuals, and traders participate in the market by exchanging and speculating on the price of various currencies. The Forex market is open 24 hours a day, and only closes over the weekend, and there are trading centers located in major cities all over the world. It is different to stock market trading, as there is no central marketplace. In effect, it takes place ‘over the counter’. All major banks quote Forex prices, but the average man on the street has to trade with the help of FX brokers.
Who are the main players in the Forex trading world?
Let’s start with some figures, before we discover who the biggest participants are. In order to grasp the enormity of the Forex market, it’s best to compare it with another popular form of investment. The New York Stock Exchange, for example, has a trading volume of $22.4 billion a day. Sounds pretty amazing, but when compared with a daily trading volume in the Forex market of $5.3 trillion a day, it pales into insignificance. But this figure can be a little deceiving, as it relates to the Forex market on a global scale. The little section that most of you will be interested in is retail Forex trading, which only amounts to a mere $1.49 billion. So who are the other participants in the Forex market?
- Banks – This section of the market makes up the biggest percentage of commercial FX transactions. Some of the largest banks have been known to trade billions of dollars every day. Some of the trading takes place on behalf of the bank’s customers but most is done by the bank itself.
- Companies – Companies play an important part in the Forex trading market. They use it to pay for goods and services from other countries, and also to sell goods and services in other countries.
- Central banks/Governments – These participants also play a vital role. They are able to influence their own country’s currency value, and can also stabilize the market because of their large currency reserves.
- Hedge funds – A big part of Forex trading is speculation on whether the price of a particular currency is going to rise or fall. There is no actual intention to buy or sell and take actual delivery. Hedge funds have a big part to play in the currency markets because they have the ability to control and speculate with large sums of money.
- Individuals – An individual takes part in Forex trading when traveling to a foreign country and changing their own currency for that used in the country of their vacation destination.
- Investors – An investment firm manages the portfolios of their clients, and this may include the buying and selling of foreign securities.
- Retail Forex traders – This section of the trading market are people just like you. When Forex trading first started it was those mentioned above who made up the majority of participants. However, the introduction of online Forex trading meant that the average person was able to take part. This section of the industry is growing rapidly, as more and more people are able to taste the excitement, enjoyment, and profit it can bring.
Why has trading Forex become so popular for the average Joe?
Trading foreign currencies is a form of investment and the fact that it is so easy to do, now that trading Forex is done online, is just one of many reasons for its current popularity. Here are a few others:
- Compared with trading stocks and commodities, the charges and fees are much lower
- There is great flexibility allowing traders to participate from Sunday 5pm EST to Friday 4pm EST
- It only requires a couple of hundred dollars to get started and the market is easily accessible
- Wherever you are located in the world, provided you have a reliable and secure internet connection, you are free to trade
- There are far fewer currency pairs to choose from, compared to the large number of stocks and shares
- Because Forex is a volatile market there is an opportunity to make a profit not just when prices rise but also when they fall
Before we go any further, now may be just the right time to introduce some of the jargon often used when discussing Forex trading. As from now on, we’re going to be making use of more technical terms.
A quick introduction to the more basic Forex terms
Before we carry on it’s time to include a quick explanation of some of the most basic Forex terms. Once you’ve got a basic understanding of the jargon you’re going to be in a much better position to understand what you read about the industry. And it’s going to help when it comes to reading our best Forex broker reviews and when you start looking at some of the best Forex sites.
Currency pairs – This refers to the trading of two types of money, one for the other. It is possible to trade almost any kind of currency, as long as someone has the currency available. There is no common value on what a currency is worth, and the market is in a constant state of flux, with prices moving up and down against each other. Currency pairs are grouped into majors, minors, and exotics. Major currency pairs all have the US dollar on one side and are the most frequently traded. Often they have the lowest spread and are the most liquid. The EUR/USD is the most traded pair of all and accounts for nearly one-third of the market. Minor currency pairs are also known as cross-currency pairs and include those that don’t contain the US dollar. The most active crosses are those derived from three other major currencies, the Euro, the British Pound and the Japanese Yen. Exotic currency pairs include those that feature a major currency which is paired with the currency of an emerging or a strong but small economy, such as Hong Kong or Singapore.
Bid and ask price – The bid price refers to the price the market or broker is quoting for buying a certain currency pair. The ask price is a quote for selling a certain currency pair. There is often a difference between these two prices and this is known as the spread. The spread differs from broker to broker and is one factor worth considering when performing a Forex brokers comparison.
Pip – This term refers to the smallest unit on the forex market. Some currencies will have four digits to the right of the decimal point, and the furthest right is the pip. Other currencies, particularly the Japanese yen only have two digits to the right of the decimal point. And in this case, it is the second number which is the pip.
Margin – Margin refers to a goodwill deposit that a trader places up for collateral, in order to open a position. It is the credit that a good Forex broker will extend that allows a trader to trade large amounts of money without having to invest so much. But there is a risk with this form of trading, which we’ll look at next.
Margin call – Much like any other market, the forex market can sometimes become very scared. We’ll explain what a margin call is by looking back in history at the stock market panic that occurred in 2008. Trading came to a virtual standstill and a number of large players completely lost their confidence. This, in turn, initiated a margin call, which meant that everyone trading on margins had to return all the money that was borrowed. During a margin call, traders become responsible for all the money that they borrowed. This, in turn, can result in losses far in excess of the money that was originally invested. It also refers to a warning message that can happen when a trading account is running out of the funds that are required to keep any current positions open. If the market moves against the trader’s position they will be asked to make a further deposit via a margin call. If this is not done and there are insufficient funds available the open positions will be closed out.
Spread – This is the difference between the bid and ask price for a particular currency pair. It could be either fixed or variable, and is one way in which an FX broker makes their money.
Leverage – With the help of leverage a trader is able to control large amounts of money. The amount of leverage offered differs from broker to broker, and also depends on what is being traded. In some cases, it could be 20:1, but it could also be as much as 1000:1. So what does that mean? Say, for example, the leverage is 500:1. For every $1 in your trading account, you can trade $500 on the Forex market. By taking advantage of leverage traders can make substantial profits from the tiniest daily currency movements. But a word of warning. It can also lead to sizeable losses, so care should also be taken when leverage is used.
Stop loss – Suffering a loss is, unfortunately, part and parcel of Forex trading. Even the most experienced traders will suffer them from time to time. One important thing a Forex trader should learn is how to manage the risks. One way of doing this is with a stop loss order. A stop loss order can be used to close out a trade when the price moves to a level that is worse than the entry level, in order to minimize risk. When the market reaches the preset stop loss level a trade will be automatically closed.
Now you’ve got a little more understanding of some of the most common Forex trading terms, let’s see if we can help with another important aspect of FX trading.
What to look for when choosing your FX broker
Forex brokers are an essential element of Forex trading, particularly when it comes to people like you. As well as being an important element of any trade, they also have a wealth of information that most are more than happy to share. When it comes to Forex brokers comparison and when we are writing our broker reviews there are a number of things we will be looking for. We’re going to take a look at some of them now because they are important features you should be looking for when choosing your own FX broker.
This comes first in our list of features because it is what you will be using and where the action takes place. It is something we always try to mention when writing our reviews, and there are a number of questions you should ask yourself when deciding. Do you want to be able to use the platform straight away, or are you happy to use a downloaded version? Are you keen to become part of a Forex community? Do you want a platform with all the bells and whistles, or would you prefer a much cleaner and easier to use interface? We will give you as much information as possible when writing our reviews because we appreciate it is an important part of the process.
It’s vital to have someone at the end of the telephone or participating in live chat whenever you need them. Especially if you are a complete beginner, but also because you never know when you’ll need a helping hand. Finding a Forex broker that offers top notch customer support is also going to make the whole experience much better. If the trading platform freezes or you are having problems making a deposit, or a whole host of other issues, you want to be able to contact someone and get the problem resolved. And in many cases, it is vital the support is there instantly. Checking the level of customer support isn’t easy. You will have to get in touch with them directly so you can get a feel for the level of service. If a broker has a live chat option, use it to ask some questions. Do the same with the telephone helpline. And don’t forget to send an email and see how long it takes to receive a response.
Always check whether a broker is licensed and regulated. We will always mention the main regulatory bodies the brokers we review are authorized by, but you can also check for yourself. The best Forex sites will mention somewhere what regulatory body they are licensed by, and you are able to check the validity of the license by visiting the regulatory bodies website. We always check for ourselves, as there have been cases when a broker claims to be licensed and regulated but it is not actually true.
The amount of leverage available will vary from broker to broker, but it will also vary between individual accounts. It might be 20:1, 50:1, 200:1 or possibly even higher. Leverage can be a great advantage, but it does have its downside. It has the potential to substantially increase profits, but it increases the chances for increased losses in equal measure.
Whichever broker you choose you are going to be faced with inevitable charges. After all, even the top FX brokers don’t offer their services out of the kindness of their hearts. Even the best Forex brokers are going to charge either commission, make their money through the spreads, or it can often be a combination of the two. So when you’re comparing Forex brokers don’t forget to figure all the fees and charges into your calculations.
These can vary considerably from broker to broker, but also between different accounts. Many of the top FX brokers will offer a number of different accounts, each of which will have its own individual requirements and benefits. In some cases the minimum deposit will be very small, sometimes as little as $1, which is one of the reasons for the popularity of trading Forex with beginners and new investors.
Eventually, there will be a need for you to make a withdrawal from your trading account, and it’s vital for this to be stress-free. Individual FX brokers have their own policies for the depositing and withdrawal of funds. Therefore, it is vital you check the small print and the terms and conditions in order to find the best FX site. Brokers support a number of different payment methods, and some may make an additional charge.
Finding a broker that offers a free demo account is very advantageous. Not only does it give you the opportunity to try out different trading platforms. It also lets you test a particular strategy as well as get a feel for the broker, before putting real money at risk. Demo account trading platforms are not a direct copy of real live trading, as they often differ in execution, slippage, and reliability. But if it’s not going to cost you any money you’d be daft not to take advantage of the opportunity.
Now you’ve reached the end of our first page we hope you’ll be staying with us. Keep us as one of your favorites because we’ve got lots more to share. And we’ll be bringing you some honest, up front and reliable reviews in order to help you on your journey.