Best Forex Brokers Compared

BrokerFXCMXMFXTMHotForexPepperstone
Founded19992009201120102010
RegulatedFCA, BaFin, CONSOB, ASIC, SFC, ACPCySEC, IFSC, ASICCySEC, IFSC, FCAFSB, FSC, DFSA, FCA, BaFin, CySECFCA, ASIC
Leverage3088810001000500
Spread variablevariablefloatingfixed & variablefloating
Payment MethodsDebit & Credit Card, Paper Cheque, EFT, Wire Transfer, SkrillCredit Card, Netteler, Skrill, Klarna, Wire TransferCredit Card, Wire Transfer, PayPal, BTCWire Transfer, Credit Card, WebMoney, Skrill, Moneybookers, Neteller, cashU, fasapay, BTCCredit Card, Neteller, Skrill, PayPal, WireTransfer
InstrumentsIndices, Commodities, Treasury, ForexForex, CFD, BTC, Stocks, Indices, MetalsBitcoin, Forex, CFDForex, Metals, CFD, Indices, Oil, Stocks, CryptoGold, Silver, Futures, Binary Options
Scalpingnoyesyesyesno
Hedgingnoyesyesyesyes
Demo Accountyesyesyesyesyes
LocationLondonLimassolLimassolMauritiusMelbourne
AddressForex Capital Markets Ltd. Gresham Street, 4th Floor, London EC2V 7JE12 Richard & Verengaria Street, Araouzos Castle Court, 3rd Floor, 3042 Limassol, CyprusFXTM Tower, 35 Lamprou Konstantara, Kato Polemidia, 4156, Limassol, CyprusHF Markets Ltd C/o SAFYR UTILIS LTD 7th Floor, Tower 1 NeXTeracom Cybercity Ebene 72201 Mauritius727 Collins Street, Melbourne - 3008
Websitehttps://www.fxcm.com/https://www.xm.comhttp://www.forextime.com/http://www.hotforex.com/https://pepperstone.com/

Entering the forex market usually requires the services of a forex broker. The main issue with brokers is that there are so many of them that it is sometimes hard to choose just how to open an account with. It is important to do research and ask questions. This FAQ will answer many of the most common questions.

Some of the questions lead directly into some of the other questions. This outlines the importance of viewing every aspect of opening an account with a forex broker. It is a serious decision that should only happen after a potential trader or investor fully evaluates the broker inside and out.

Asking questions isn’t always enough though. Research goes far beyond asking questions and getting answers. Even though this FAQ provides answers to many questions, each of those answers can change depending on the broker. So it is important that potential traders or investors take anything as concrete until they check the answer against whichever broker they are researching.

What is it that Forex Brokers Do?

A forex broker is the intermediary between traders and the interbank market. They execute trades and orders on behalf of the forex trader. Brokers vary in their approach to trading and some are far more experienced than others are. They all make their money on commissions and fees.

The word “broker” has diverse meaning, as it can stand in place for an individual broker, or an entire brokerage. The broker offers tools and platforms that make it easy for potential traders to start placing orders on securities.

Without a broker, someone who would wish to trade in currency speculation would need intimate knowledge of the interbank system, a lot of money, and a relationship ship with the banks as well. They would also need the ability to buy and sell foreign currency. Brokers facilitate that process with various tools.

Do Traders and Investors Need a Forex Broker?

The short answer is yes. Traders and investors need a forex broker if they are going to challenge the foreign exchange market. Of course, those that know the forex market and are old hands at making trades directly may choose to forego the services of a forex broker. But even then, a forex broker offers many ancillary benefits beyond the core transaction. Forex brokers offer,

  1. Tools for analyzing the market
  2. Platforms to make transactions easier
  3. Expertise in the form of support
  4. Easier access to trades that traders may not find on their own
  5. Leveraging options that simply don’t exist in direct transactions

There are many more benefits to using a broker besides. Each broker has strengths that can help both newcomers and market professionals.

Are Forex Brokers New?

Foreign exchange markets have existed since antiquity. There have been brokers that covered these exchanges for just as long. New investors would do well to check into the longevity of the broker they want to choose. While there are many new forex businesses doing excellent work, it is important to take longevity into account. A broker that has been around for a while comes with many unstated advantages.

  • Longevity means no history fraudulent activity
  • Longevity means the broker will still be there tomorrow
  • Longevity means the broker had time to fine tune their financial products
  • Longevity means professionalism

Defining longevity is not hard. Even a few years as a broker means that the business has managed to stay afloat and avoid any allegations of fraudulent activity. While there is nothing wrong with giving a new business a chance, potential investors need to exercise care.

Even older, more experienced forex brokers can fall, and just because they have been around for a long time does not mean that they do not have predatory practices. Longevity is just one aspect, it is not the defining one for what makes a broker a good choice or not.

Who Participates in Forex Trades Other than the Brokers?

The foreign exchange market is extremely large and goes far beyond forex brokers. The main players are the large banks who set the exchange rates. These large banks are the top level of the forex market.

The banks and those that deal with them directly are what is known as the interbank market. Most normal traders have no access to that particular inner circle.

The top owners of the forex market include:

  1. Citi
  2. Deutsche Bank
  3. Barclays
  4. UBS AG
  5. HSBC

At these upper levels, forex trading happens in large volume. The spreads are extremely tight. It is into this market that many forex brokers will submit their volume trades. Participants in the interbank market include not only banks, but also various types of larger financial entities. Corporations also participate and there are many auxiliary services that have sprung up around these activities, of which forex brokers are just one of.

Are Forex Brokers Regulated?

Forex brokers in the United States should be members of the National Futures Association, or NFA. The NFA is a self-regulated organization and membership for futures market participants is mandatory. A forex broker that is a member of the NFA shows that their investors have a means to resolve complaints and dispute the broker’s activities.

As members of the NFA, a Forex broker will also have registry with the US Commodity Futures Trading Commission, or CFTC. The CFTC is an independent government group created specifically for regulating the futures and commodities market. Not all forex brokers are members of the NFA or regulated by the CFTC. Those that fall under these regulatory umbrellas will usually display that they are along with the membership number.

There are also regulatory bodies for forex brokers outside of the United States, as well as other independent watchdog authorities. These can include,

  • Australian Securities & Investments Commission (ASIC)
  • Financial Services Authority (FSA)
  • World Economic Forum (WEF)
  • The Financial Conduct Authority (FCA)
  • International Energy Agency (IEA)
  • International Monetary Fund (IMF)
  • The Committee of European Securities Regulators (CESR)
  • Ministry of Finance (MOF)
  • Financial Supervisory Agency (FSA)
  • Bank of International Settlements (BIS)
  • The World Bank (WB)
  • International Finance Corporation (IFC)
  • Swiss Federal Banking Commission (SFBC)

When a forex broker has the backing of one or more regulatory bodies, it gives potential investors security. It also shows that the broker is responsible, honorable, and has integrity. While a forex broker that has submitted to one regulatory body is better than none, investors may better appreciate a broker that complies with several regulatory bodies. This is especially true if they have operations in other countries.

What Kind of Accounts do Forex Broker’s Offer?

Like any financial portal, a forex broker’s offerings can vary. Most will offer an account that allows for various types of trading options. They will also offer various ways to make deposits and withdrawals.

Many will have some kind of initial deposit requirement, but that requirement is often low. After all, since many traders and investors will make use of the forex broker’s margin and leveraging, it is usually easy to start an account with the minimum balance.

It is important that potential traders and investors look for broker’s that offer the types of accounts and options that appeal to them most. Forex brokers know this, which is why many of them offer demo accounts to help potential client’s get acclimated to using particular types of account offerings.

The most common types of funded trading accounts include:

  • Mini accounts – Small currency lots, lower initial cost, less reward, but more flexibility
  • Full or Standard accounts – Standard currency lots, larger upfront cost, more reward for pip movements
  • Managed accounts – Offers professional guidance, fees, less flexibility, but more diversity

These are the most typical types, although some brokers have different names for them. Some forex brokers also offer different types of accounts, but these tend to be more specialized. Even among these common types, it is possible for many deviations, especially with the managed accounts.

Managed accounts can come in different types. The most common types of managed accounts include pooled funds and individual funds. The pooled funds are managed mutual funds, so the trader’s money will go in with money from other traders. The account manager will then make trades with that pooled money. The individual funds are separately managed and are more of a one-to-one between the trader and the account manager.

What are The Currency Pairs the Brokers Offer?

It is important for potential investors to know about currency pairs, especially since not all forex brokers deal with all types of pairs. Most will have options for the major pairs, such as euros, yen, and dollars. Some will only offer trades in very strictly defined pairs. For traders that want to expand into other, lesser-traded minor currencies, they will have to make sure that their broker can handle it.

The first currency is the base and the second currency is the quote. It is a statement that defines how much of the quote currency is required to make one unit of the base currency. The most common currency pairs are:

  • EUR/USD – Euro to US Dollar
  • USD/JPY – US Dollar to Japanese Yen
  • GBP/USD – British Pound to US Dollar
  • USD/CHF – US Dollar to Swiss Francs
  • USD/CAD – US Dollar to Canadian Dollar
  • AUD/USD – Australian Dollar to US Dollar
  • NZD/USD – New Zealand Dollar to US Dollar

While the Euro to USD assignment is the most recognizable and popular, there are many combinations for more advanced traders. For beginners in the forex market, the EUR/USD trades will probably work best. It is also the most prevalent designation among all forex brokers. However, different pairs are possible, and different currencies are available for trade. Some brokers will specialize with these other pairs, while other shy away from them.

In general, the more currency pairs a broker offers the better. This is not always true for all traders however. A trader that knows precisely what currencies he or she wants can narrow down their search of brokers. In addition, a lot of options can make the process confusing for newcomers, especially since each pair comes with its own spread.

Do Forex Brokers Offer Support?

The support options for forex brokers will vary from broker to broker. Those same options may also vary from product to product. For example, there may be limited support for a mini-account, better support for a standard account, and 24/7 live support for a managed account. This is not always true, but it is important for potential clients to look into the support options offered by a forex broker before signing up with them.

Since trading happens at all hours of all days, it is important for a trader to have someone who they can get a hold of if they need help. The scale of the available help can vary as well. One broker may utilize automated help and online tools. Another may have live support and chat support. The best forex brokers will offer many avenues of support for all of their clients.

Many trading questions can be solved with an internet search, but sometimes, a trader may have a complex question that they need immediate help for. That person should be able to get in contact with his or her forex broker. Some of the smaller brokers may have some trouble with including robust support; this does not mean that they offer subpar service. It just means that they have not reached a point where they can accommodate a large volume of support requests.

Some of the larger forex brokers offer live support and chat, but it does not always mean that those on the other end of the line are truly knowledgeable on the subject. It is up to the potential client to test the support features and see if they work for them or not.

Language also plays a major role. For traders that join foreign brokers, there is a language barrier if they need support. Traders need to make sure that the group they join actually supports the language they speak. Otherwise, their support options will become severely limited.

Do All Forex Brokers Have Dealing Desks?

Not all brokers offer a dealing desk. However, depending on the account type, some brokers may offer dealing desk type services. Traders need to understand there are different criteria for dealing desks. Even if a broker offers a dealing desk, it may not be anything more than a higher form of client support. Brokers typically offer these types of dealing desk features to their upper tier clients. This type of dealing desk is not the dealing desk that most people are talking about when they inquire about a broker’s methods.

For a more technical dealing desk, traders should ascertain if the forex broker uses a dealing desk for trades, or non-dealing desk (NDD).

Dealing Desk brokers – This type of operation is the one many people term a “market maker.” This type of broker will play the opposite of the trader. If the trader buys, the market maker will sell. This creates the spread, and therefore creates the market. From there, the trade will become a loss, which creates the commission for the broker; or a profit, which then goes on to the “real” market.

No (Non) Dealing Desk brokers – In this model, trades do not go through a dealing desk. Instead, they go straight through to the interbank market, which is where all of the real currency speculation occurs. NDD brokers work off of different models. These can include straight through processing and an electronic communications network.

  • Straight Through Processing (STP) – An electronic process that doesn’t require a broker
  • Electronic Communications Network (ECN) – A means for all parties to interact with each other and make bids accordingly

Many forex brokers mix and match these offerings in various ways. They collect commissions in different ways depending on the methods used. Each method offers both positives and negatives to traders, so it is important that they learn more about exactly how each method works.

Do Forex Brokers Offer Trading Platforms?

It’s a given that clients will need a trading platform to make transactions. However, not all forex brokers offer intuitive and easy to use platforms. Some will require traders to download and use third-party applications, while some others use web-based, online tools. The platform is important, as it is the main interface that the trader or investor will use. If they do not know how to use it, or its GUI is too cluttered and counterintuitive, then they simply will not use it.

The trading platform is a major part of the activity and the experience. So it is important to use forex brokers that take their platforms seriously. Many forex brokers offer demos and trials of their software and trading platforms. New users should take advantage of these to test the waters and see if the platform will work well for them.

A well-designed platform will help make trades easier, which in turn will allow traders to want to make more transactions. A badly designed platform can cause users to make costly mistakes and keep them from making any trades at all.

A demo account is usually a free mock account that can help traders get used to the broker’s platform. It allows traders to navigate the system and experiment with making trades without using any actual money. In the demonstration, traders can learn how to use shortcuts, and learn the tricks of the system. It is important that forex brokers offer such demos for their potential traders. In the case where the broker uses a third party platform, they may not offer a demo.

Mobile platforms are also available from some brokers. Many of the larger brokers allow access to trades and charts from mobile devices, but it is not a given that any particular broker will have such features. Some may have analytical tools but no trading functionality. Some others may have a full suite of features including trading. Traders that need mobile access would do well to investigate whether their potential forex broker offers such features. They also need to know if it is free or if the broker charges for the service. Some mobile service go no further than simple SMS market alerts, but that can still represent a boon to many traders.

Some brokers also make use of many automated processes on their platforms. These automated services can free the trader up from having to take control of all the minutiae of trading. However, some traders prefer more control. So it is important for traders to verify the extent of a broker’s automation and algorithms before they start trading.

Does it Matter Where a Forex Broker is Located?

Location definitely matters. Different places have different rules, regulations, and laws that govern how a financial institution can operate. This is especially important for forex brokers headquartered in other countries. When potential investors open an account with a broker that’s located somewhere unfamiliar, then that investor needs to do some research.

They will need to know

  • If the broker’s country has a regulatory body
  • If the broker is operating outside of its legal boundaries
  • If transactions can have repercussions in the investor’s own country

Some traders from one country may purposefully open an account in another country to circumvent certain regulations. However, if the trader opens an account in a country that has very little regulation, they put themselves in possible jeopardy. A poorly regulated broker has nothing to stop them from fraudulent activity. Additionally, a trader will have no one to bring grievances to if they suspect or fall victim to unfair practices.

There are some brokers that maintain international offices precisely for these reasons. The best brokers will have each offices submit to that particular country’s regulatory body. This kind of setup gives traders the comfort of signing up in a place they are familiar with, while still having access to many of the benefits of foreign accounts.

How Does the Forex Broker Make Money?

There are various ways that a forex broker can make money. The most common ways they do it is through a commission structure based on spreads. The spread, as used in forex trading, is the difference between the bid and ask price. It is that difference that the creates the commission for the forex broker.

  • Fixed or standard spreads – The spread remains constant despite the market
  • Variable spreads – The spread can change with market volatility

For fixed spreads, a broker can offer several different points depending on the currency pair. The fixed nature of the spread can also vary by day because the fixed point is usually based on a daily average. Just because it is stated to be fixed, does not mean it will not ever change.

Variable spread points can change at any given moment over a twenty-four hour period. Some brokers may only offer one type of spread or the other. Each can offer positives as well negatives. In either case, the forex broker’s commission is based on the spread. Some forex brokers can get quite creative with how they manage the spread. Some broker’s hedge heavily, while others utilize different spread percentages.

Although this practice is not widespread among forex brokers, some brokers also allow trading within the spread. This is sometimes called scalping. There are also rollovers, which brokers can collect interest on. This is when a trader holds a position overnight.

Spread percentages and variations can change from broker to broker. Even when the offer is fixed, there are sometimes variables. Checking out a forex broker’s commission structure is an important part of evaluating if a broker is right or not for any particular trader.

Some brokers do in fact charge flat fees for transactions. Otherwise, they may charge for deposits or withdrawals. In some cases, they even charge for use of their platform. Potential traders need to make sure that they have a full understanding of these possible fees before signing up with the broker.

Do Forex Brokers Secure Their Data and Transactions?

Security is important. Any reputable forex broker will employ security measures to make sure that sensitive information is kept safe. They will also secure online transactions with SSL and other encryption methods.

Cybersecurity is important to anyone that does business online. A forex broker not only has to secure the transactions, but they also have to secure the data as it sits on their servers. Brokers will typically employ industry standard methods to encrypt and secure this data. If the forex broker does not expressly lay out their security measures for potential clients, than the potential client should ask.

Do All Forex Brokers Offer the Same Leverage Options?

Leverage is one of the main draws to trading with a forex broker. The leverage ratio shows how much of a position a trader can control with the amount funds the trader allocates to that position. Some brokers advertise ridiculously high ratios, but more realistic numbers are around 50:1 up to around 200:1.

These ratios can vary and go far higher than 200:1 but for newer investors, it is best to take it slow. Leverage can turn a little bit of money into a lot, but it can also turn into a devastating loss. Because of that potential loss, many forex brokers require traders to make a margin deposit. This is another aspect that traders need to investigate before opening an account.

Due to regulations, no US forex broker can offer a leverage ratio higher than 50:1 for major pairs. To get around that, some traders will open accounts with non-US brokers.

What Kind of Orders do Forex Brokers Allow?

All forex brokers allow traders to place various types of orders. There are the most common, and occasionally some special variations depending on the broker. The most common order types include:

  • Market orders – The most basic way to enter or exit a position at the current market price.
  • Stop orders – A means to place an order once the market price reaches a specific value.
  • Limit orders – A means to buy or sell when a position reaches a specific value.

A trader needs to master the order executions to make the most of their accounts. A broker needs to make it easy for the trader to utilize the different order types. Many forex brokers will offer other types of orders that a trader can take advantage of. But the trader needs to master entering and exiting with the basic order types first before tackling more complex ones.

Who Backs and Funds Forex Brokers?

Not all forex brokers have the same kind of backing. For traders, the institutions that back a broker can make a big difference. This also ties into how much capital the broker has as well, which is also important. In order for a forex broker to provide the leverage options that traders expect from them, they need the capital to do it. Many forex brokers are backed by banks or lenders.

The website of any reputable forex broker should list its backers or its parent institution. Many regulatory websites list the capital available to registered forex brokers or their parent companies.

The dangers of a forex broker with insufficient capital are obvious. Undercapitalized businesses are risky in the extreme. Forex brokers that operate while undercapitalized may be

  • Involved in fraudulent activity
  • On the verge of bankruptcy and insolvency
  • Unable to meet a traders needs

Traders should always question whether the broker has a good relationship with banks and lenders. They can inquire about the broker’s finances and the reputable broker should be more than happy to produce a balance sheet.

Do Forex Brokers Educate Their Users?

Most forex brokers have resources available to users that help them to navigate the site and use the broker’s features. They will also have tools for analyzing market data. The truly dedicated brokers will have full suites of resources to help traders and investors learn in-depth knowledge about the foreign exchange market. The larger sites will have whole encyclopedia-like areas as well as user forums and other tools.

Reputable forex brokers will keep clients up to date with news, market information, and other resources to help them make informed decisions. Having these resources make forex brokers more attractive to potential traders and investors.

Does Size Matter When it comes to Forex Brokers?

The size of the forex broker’s operation does factor in to the overall trading experience. While some smaller brokers are worth it if they fulfill all other requirements, it is the larger brokers that usually have the most to offer for newcomers to forex trading. Larger brokers tend to have more features and more tools. They also have a tighter connection to the interbank market. This means that they can typically offer better prices and smoother trading.

That is not to say there are not many excellent smaller brokers out there. It is up to the potential trader or investor to weigh all factors when researching which brokers to open accounts with. A smaller, tighter broker may be more selective which can translate to them offering better service to a select few. That is as opposed to offering mediocre service to a larger number of clients.

Do Forex Brokers Do CFD Trading?

Some forex brokers diversify their offerings with things like CFD and commodity trades. These types of trades are different from currency trading, but are also related to them.

Contract for Difference (CFD) – These are derivatives. They equate to a contract between a buyer and seller that allows for a payment on the difference between a settled amount. No matter if it is a loss or gain, the difference is paid in cash, even if the principle contract is for something like physical goods.

CFDs come along with their own methods for trading and their own inherent properties that make them different from forex trades. CFDs values are influenced by the price of commodities since they are contracts placed on the differences in prices for commodity futures.

Consider that the values of currency are usually intimately tied to the price of things like oil, gas, and metals. This is the main connection between commodities and forex values. Because of this, many forex traders sometimes watch commodity trends along with the currency market. That is why many forex brokers also offer these other types of trades. It is not a given that a broker will offer these sorts of options, but traders looking for them can search out the brokers that do.

Can a Forex Broker Guarantee Success?

It is not possible for a forex broker, or any kind of broker, to guarantee success to their clients. Trading securities is not an exact science, and the market is notoriously fickle. It is possible for a good broker to guide a client towards making moves that call for less risk and greater profit, but the broker cannot guarantee that the moves will succeed over time.

Potential traders can represent the source of their own downfalls as well. Even with an excellent broker, a trader can make bad decisions that can lead to more risk and less profit. The best ways to help traders make profits is for the brokers to advocate responsible usage of their services. For example,

  1. Traders should definitely practice with the demos
  2. Traders should not use money they can’t afford to lose
  3. Traders should not use the first broker they come across
  4. Traders should not execute orders without research
  5. Traders should learn how the system works first

No, a forex broker cannot guarantee success, but they can help guide traders towards making decisions that can possibly lead to success.

Are There Basic Ways to Tell a Good Forex Broker from a Bad One?

It is important to keep in mind that there is no central forex authority. There are regulatory bodies, but generally, each forex broker or dealer can behave much as they would like, as long as they stay in compliance. Because of that, experiences among forex brokers can vary wildly. For traders looking for a broker, there are a few things that can help make choosing easier. First, traders should research any broker thoroughly. From that research they should ascertain these things:

  • That the broker is a member of a regulatory body
  • Whether the trader’s balance will put them into a market maker account
  • Whether the broker is actually trading on the open forex market
  • The broker’s physical address or legally registered address

In addition, research will likely take a potential investor to several places where people talk openly and honestly about their experiences. These forums and discussion groups can give a good overview of what to expect.

The signs of a good forex broker usually boil down to transparency. Forex brokers that make grand promises are a sure sign of something amiss. All financial trading is volatile and there is no guarantee that any broker in any financial sector can make promises of riches. A good forex broker is open and honest about the process.

Also, the forex market is an industry. Because of that there are many bodies that evaluate forex brokers, award them, and give them recognition as good industry players. Many reputable financial publications and websites give reviews of forex brokers. When traders start researching, they should look to see if the broker is award winning or at least have good write-ups online about their services.

There are a few other things to avoid when it comes to forex brokers.

  1. Sniping and hunting practices
  2. Non-beneficial margin rules
  3. A lack of transparency
  4. Unknown brokers with no listing
  5. A lack of support or contacts
  6. Unverifiable claims

It is up to the potential trader to do the research. Reputable brokers have nothing to hide and are proud of their status. So they are usually easier to spot. Once a trader starts getting into more complex trades, they will likely start looking for niche brokers and brokers with specialties. This is when it becomes harder to separate the potentially dangerous forex brokers from the safe ones.

Conclusion

It is easy to see the vast considerations that, by necessity, must go into choosing a forex broker. The nature of finance is volatile, and the forex market is no different. There are major concerns that potential traders and investors must always take into account before going into any financial market endeavor.

Some traders can end up in situations where they have a broker that they do not want or do not like for some reason or another. In cases such as this, it is important for them to get their money out and cut ties as soon as possible. Unfortunately, for those locked in with a disreputable broker, this is not always easy. That is one of the main reasons that potential traders need to understand how their brokers operate.

The key here is that research is the friend of traders. Research helps them choose wisely as well as make transactions with confidence. The same rules that govern their investment strategies should also govern how they choose their brokers. After all, choosing a forex broker is an integral part of their investment strategy as well.