On this page you will find all the information you need to know about the Forex trading system. We also include a ranking of the best online Forex brokers so that you can choose the one that best suits your trading strategy.
- Best Forex Brokers
- What is Forex?
- What is Forex trading?
- Is it safe to invest in Forex?
- How to start trading Forex?
- Which instruments to buy on Forex?
- How to choose a Forex broker?
Best Forex Brokers
What is Forex?
Forex (sometimes referred to simply as FX) stands for “foreign exchange“. We are trading Forex every time we exchange currencies (e.g. when travelling) or when we buy a product in a currency other than that of our country of residence. This is Forex trading as currencies are the financial instruments we trade.
Can you imagine how much money can be moved per day in the Forex currency market? Around 5 trillion dollars. This makes it the largest and most liquid decentralised global market in the world. Ergo, Forex is not just about exchanging currency so you can pay for your holidays (in fact, that is its most lucrative aspect), but it is a huge opportunity for investors: if you were to add up the turnover of all the stock exchanges, it would still be less than that of Forex.
Among the key features that make Forex trading one of the most attractive speculative stocks for retail and professional investors is its tremendous volatility. This provides a great opportunity for large profits, and a great risk of large losses. That’s Forex, my friends.
In this market one can invest in currencies. Although there is a wide range, some of the main currency pairs most commonly used by traders are: EUR/USD, AUD/USD, USD/CAD, EUR/GBP, EUR/JPY, UDS/JPY, GBP/USD, NZD/USD.
Types of Forex markets
- Cash: This is the one that almost all of us have participated in at some time or another: currency exchange. Ergo, buying one currency and selling another. In this market a physical exchange takes place.
- Forward: This is, as above, a purchase of foreign exchange. However, in this case a price is established for a certain amount and the exchange takes place in the future. In other words, the maturity date of the operation is set at a later date. It could be said that it involves locking in an exchange rate in anticipation of possible increases in value.
- Futures: This is very similar to forwards, because a purchase or sale is also agreed for a certain amount and with a future date of exchange. The difference is that futures contracts are legally binding. The date that is established is absolutely unavoidable.
What is Forex trading?
Forex trading consists of speculating on the fluctuations in the values of one or more currency pairs over a specific period of time. It is, in short, anticipating whether the value of one currency will rise or fall in relation to the value of another or others.
CFD trading allows us to generate profits even when the value of a financial instrument is falling. To do so, we would open short positions and, if our prediction is correct, this would generate profits.
However, any kind of trading requires a certain amount of knowledge and involves risks that you need to be aware of beforehand. This is even more important when trading CFDs on Forex. On the other hand, before investing in Forex you should carry out technical and fundamental analysis of the currency pair you are interested in. Another tip is to keep an eye on the economic calendar as well as any news that may affect the currency markets.
Reasons to trade Forex
We have already touched on them before. There are two main ones.
- Buying goods or services abroad: This is the part of Forex trading that people use more or less regularly. However, many people who do this do not know that they are trading in the Forex market when they buy something in a different currency.
- Investment: Those who use it to invest do know where they stand. And if they don’t, we are here to explain it to them. As mentioned above, this is the most common use. Those who trade in Forex have no intention of physically owning the exchanged currency, they only speculate and invest with the oscillations of its value, being able to make many operations in a single day.
Is it safe to invest in Forex?
Let us establish a dichotomy: on the one hand, security from a legal point of view, i.e. that your money is safe in a reliable and trustworthy market. On the other hand, security that you are not going to lose a lot of capital, referring only to the investment and the risks involved.
On the first aspect, the answer is very simple: the Forex market is safe if you use regulated forex brokers. You already know that all the ones we show on OkBrokers are, and we also give you guidelines on how to check if an online broker is safe. The other branch has to do exclusively with the decisions you make. The Forex market is very volatile, competitive and – there is no denying it – trading in it carries an obvious risk. Yes, you can lose money, but you can also make money.
If you are a novice, you should start practising with a demo account offered by almost all Forex brokers. You also have the option of leaving your trading in the hands of others: experts, automated trading systems, robots or even copying the moves of the most famous and successful traders.
Forex commissions and spreads
There are brokers that set a commission that you will have to pay for trading with them in the market. Not all of them, in fact, more and more have eliminated this fee. However, this does not mean that Forex trading is free, and this is where the spread comes in, which is the difference between the bid price and the ask price.
But the best way to understand this is with an example: imagine that you enter a trade with these market bid and ask prices: 1.5421/1.5423. You enter buying, therefore, at 1.5423. Your position is -2 points, because if you were to sell you would be 2 points below the bid price. You pay 2 points of spread.
Then, the price goes to 1.5430/1.5432 and you sell (at 1.5430, Bid price). You have earned 7 PiPs (which is actually 5, because you have paid 2 of that kind of commission before). Some brokers offer variable spreads like the one in the example (variable and market driven) and others offer fixed spreads. There are even those that offer different spreads depending on the financial instrument you choose.
Another key concept to consider when choosing an online broker for Forex trading is leverage. Most usually offer high leverage, which (clearly and directly) means investing in the market with a small amount of money, but as if it were done for a much higher amount of money. Profits multiply. So do the losses. Leverage is a risk that the trader has to assume and therefore this issue must be treated with care. At OkBrokers we recommend trading with brokers that offer protection against negative balance for greater security.
How to start trading Forex?
Getting started in forex trading is really easy. In three steps (which we will now list) you will be ready. But don’t be blinded by eagerness. The less cold-blooded you are, the more chances you have of losing money. Act calmly, open a demo account if you are a beginner, practice, learn, ask questions, read… See how the best do it.
And only when you are absolutely capable do you start putting your money on the line. We repeat: on Forex you can make a lot of money, but you can also lose money extremely easily.
Steps to start investing in Forex:
- Open a live account with an online broker.
- Deposit the money you want to invest. Depending on the trading platform on which you trade, a different minimum amount will be set.
- Choose the currency pair you want to trade.
What are the best online Forex brokers?
An essential figure in this market is the online Forex broker: these are companies that act as intermediaries and execute the purchase or sale operations requested by their clients. All this in exchange for a spread, which is nothing more than a commission.
|Broker||Licence||Currency pairs||Demo Account||Platform|
|XTB||CNMV, FCA||+50||Available||xStation 5|
|Avatrade||CBI, BVI FSC, FSP, FSA, FFAJ||+50||Available||Metatrader, AvatradeGO, Webtrader|
|eToro||CySEC, FCA, ASIC||+40||Available||Copytrader|
|BDSwiss||CySEC, CNMV||+45||Available||Metatrader, BDSwiss Webtrader|
|Plus500||CySEC, ASIC||+60||Available||Plus500 Webtrader|
The commissions that are managed are really low, something that happens, mainly, thanks to the so-called leverage, which means that a small amount of money can be invested, but with the effect of operating with a much larger amount of money. For example, to have a leverage of 1:400, you only have to contribute 50 euros, however, you will be able to obtain profits as if the investment had been 20,000 euros.
With this in mind, starting to trade is really easy, as all you need is an internet connection and a computer, tablet or mobile phone to open a trading account with an online Forex broker.
Probably the most important decision to make before you start trading is to choose one of the best online brokers. To ensure that you make the right choice, we advise you to establish a series of minimum requirements that they must meet. For example, to choose only Forex brokers regulated by prestigious regulatory bodies such as the CNMV (Comisión Nacional del Mercado de Valores de España), the FCA (Financial Conduct Authority) of the United Kingdom or the CySEC of Cyprus among others.
You should also analyse their trading conditions and the trading platform they offer (Meta Trader 4 or 5, Sirix Webtrader, mobile trading apps…). In the following sections, we will review the filters and analysis that must be carried out before choosing a broker to trade Forex definitively.
However, we can already tell you that, after an exhaustive study based on analysis, experience and numerous comparisons of online brokers, the list you will find at the top of this page mentions what our experts consider the most recommendable Forex brokers.
Which instruments to buy on Forex?
A financial instrument is an asset that can be traded. Financial instruments related to Forex are divided into two broad categories: cash instruments and derivative instruments.
Cash instruments (spot currencies) are securities, loans and deposits. The price is set by the market. In other words, the investor buys or sells the asset (the currency) at the price dictated by the market, which is normally already established when the contract is concluded, although, for reasons of time difference (it is a global market), the actual delivery of the asset may be postponed for a few days.
Derivative instruments, unlike the former, do not have a value in themselves, but derive their price from other assets, such as shares or commodities. They are divided into two subcategories: standard derivatives, which are traded on exchanges, and are exchange rate futures; and Over The Counter (OTC), which are forwards, swaps or Forex options. Let us delve a little deeper into these to briefly describe each of the instruments:
- Futures: transactions with a stated size and a stated maturity date which are usually traded on markets created per se.
- Forwards: the transaction takes place at a future date – previously established – and the exchange rate need not be market-based.
- Foreign exchange swap: consists of an exchange of a stipulated amount of foreign exchange, with a commitment by both parties to return the foreign exchange within an agreed period of time.
How to choose a Forex broker?
Four trillion dollars are traded daily on Forex, making it the largest market in the world in terms of volume. With such figures, it is perfectly understandable that currency trading is becoming increasingly popular and the number of websites offering this service is growing all the time. Forex brokers and trading platforms abound on the Internet, making it extremely difficult to make the right choice of forex trading platform. This (the choice) must necessarily involve a prior analysis, which, unquestionably, must involve the consultation of some really important variables. The final decision is not easy, that is why our experts have established these determining factors when choosing which online Forex account is the most suitable.
A major factor in choosing the ideal Forex broker is the commission that the broker will take. If it is too high, it is not worth continuing with the rest of the analysis. It is worth returning to the net, as, of course, the investor’s potential future profits can vary considerably depending on this aspect. The commission is very often set in line with the Pips (Percentage Interest Points): this is the smallest movement that can be observed in the price of an exchange rate or currency pair, i.e. if for example the Euro/US Dollar exchange rate is at 1.3530 and moves to 1.3531, it will have risen by one pip. A sign that the Forex broker in question is a good professional is when they set very tight spreads on similar pairs such as dollar/euro or pound/euro. However, there are also some that do not set this commission based on pips.
Among the basic features that an online Forex broker must meet, one related to security is a must. It goes without saying how important security is when trading online. The security of a site is classified by the term SSL (Secure Sockets Layer) encryption, which is the same encryption software that is used by banks and, in general, by all financial institutions. It should appear at the bottom of the page, if it does not, it is best to exit the online forex site and start the search again.
3. Regulatory bodies
This point is closely related to the previous one on Security, since a reliable sign that an online Forex broker is trustworthy and therefore safe is that it is registered and verified by the competent regulatory body at all times. This (and this is an important consideration) will differ depending on where the online forex brokers are located. For example, in the United States, they are regulated by the National Futures Association (NFA) and must also be registered with the Commodity Futures Trading Commission (CFTC). In the UK, however, the body in charge is the FCA.
4. Customer service
We continue with what we could call: minimum essential requirements that a platform must meet in order to be considered reliable and, therefore, to be chosen by the retail investor to trade in the Forex market. A good customer support service is paramount. Sites that have a quality one usually provide the user with several options for resolving their queries: telephone, email and live chat, as a minimum. A good service should offer, at least, these three possibilities to the client when it comes to raise their doubts or to put on the table possible discrepancies that may arise with the services offered.
5. The trading platform
In the Forex market, decisions are sometimes taken very quickly, and always, before executing a move, it is necessary to consult a series of variables: quantities or figures that must be visible to the user at all times. When the site is of high quality, navigation is extremely easy and, on the contrary, if the investor is not comfortable, he may lose an interesting operation. So, one of the tests that any Forex platform must pass to know if it is the right one, will depend on the answer to questions such as: Is it easy to consult the status of the pairs in real time? Are profits (or losses) visible on the home page? How often is the site updated? Are the “buy” and “sell” options clearly delimited?
6. Currency pairs
Let’s start talking about money, but not, for the moment, about quantities. Let’s start with currency (in general). When the site is reliable, it offers a large number of pairs to choose from. USD/EUR can never be missing, but the platform would prove its quality if it included others such as USD/GBP or EUR/GBP. The existence of a large number of pairs to choose from is important because it will serve to diversify the investment and avoid, to some extent, the affectations caused by the volatility of a given currency.
7. Types of accounts
In line with the amounts that are intended to be traded in the market, the investor should have the option to open one type of account or another. Although different names are used depending on the platform, most commonly accounts are differentiated by Beginner/Mini Accounts, Professional Accounts and VIP Accounts.
8. Initial deposit
Before making the final choice, it is necessary to check what minimum amount is required as an initial deposit to open the account. Usually – and this is one of the features that make online Forex really attractive – it is not necessary to invest a large amount of money (as opposed to other markets, such as gold, for example). Some forex brokers even require as little as a $50 entry fee. A good indication of the quality of the platform is whether it offers different levels of initial deposits depending on the particularities and needs of the investor.
9. Deposit and withdrawal systems
One more test the site has to pass: reliable platforms offer numerous methods both for depositing and withdrawing funds. The most common are credit card, PayPal or bank transfer. If these three are not available – or some unknown system is included – it is best to keep looking. Similarly, it is very important to check if there are any fees for withdrawals, as this can obviously directly affect your winnings. Usually the methods available for depositing are the same as those available for withdrawing funds.
You may be a beginner now, at least new to this site, but if all goes well, you will have become a long-time customer in a while (and after a few trades). That’s why – although it may seem like a minor issue at the moment – it’s interesting to know if the Forex platform offers any discounts to regular traders. These are usually in the form of lower commissions; something that will increase the client’s potential profit margin.
11. Interaction with other investors
We are about to finish with this list of minimum characteristics that a platform must have in order to be considered reliable and trustworthy. If it has passed the previous ones, it looks very good, but there are still a couple of hurdles to overcome. One of them is to find out whether the site offers the possibility of interacting with other investors, something that is becoming increasingly common on the most important sites. This, in addition to helping you meet people with common interests, is an excellent way to learn and receive advice from the most experienced Forex professionals.
12. A demo account
You can’t wait to start operating, of course, but it pays to have a little patience. In the end it is always appreciated. Therefore, even if the online Forex broker has successfully passed the above checks, it is appropriate to start with a demo trading account. These do not require an initial deposit and can only be used for a certain period of time. Good forex brokers always have this option, which is really useful for the prospective trader to become familiar with the operation of the platform.
13. Maximum leverage
Leverage is attractive because it allows you to trade with more funds than you have deposited. While this sounds attractive, it can also be a double-edged sword: if our Forex trades are successful then we multiply our profits. On the other hand, in case the Forex market moves in the opposite direction than expected, leverage can result in a rapid loss of capital. That is why it is necessary to use it with caution and pay attention to the maximum leverage that each broker offers for the currency pairs we plan to trade.
So much for our Forex trading guide. We hope you found the information here useful and don’t forget to leave a comment.
- Investing in EUR/USD
- Investing in GBP/USD
- Investing in EUR/GBP