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Using a Forex Broker - Your Ultimate Guide

This is the ULTIMATE guide to Forex brokers for beginners. I will teach you everything you need to know about Forex brokers, from broker basics to choosing a trustworthy brokerage service.

Forex brokers explained

"Understanding how to use a Forex broker, including the costs involved, is essential to successful trading. You must fully understand the risks involved and how to place trades economically. Let me share with you everything you need to know about Forex brokers"

Forex Brokers: The Basics 

Let's start with the basics.

Question: What is a Forex broker?

Answer: A Forex broker provides access to the Forex market. You must use a broker to trade Forex - there is no other way to trade Forex. 

A broker offers currency pairs for you to buy and sell for a small fee. Currency pairs are bought and sold through the broker's trading platform, usually browser-based, desktop-based, or a mobile app. 

Question: Why is a Forex broker needed?

Answer: You must use a Forex broker to trade Forex. There is no other way to trade Forex. 

Forex brokers provide more than market access. They also offer real-time currency prices, historical price charts, a wide range of tradeable currency pairs and leverage

Question: How do you use a Forex broker?

Answer: Most brokers offer demo/paper and live trading accounts. These accounts can be opened through the broker's website. If you are using a live trading account, you must fund the account. Most brokers accept debit card payments and bank transfers. 

Trades are made using the broker's online trading platform. The platform tracks your open trades, closed trades, profit or loss, and account funds. 

Funds can be withdrawn from the brokerage account and returned to your card or bank account, at any time. 

Forex Brokers: Costs & Fees

Question: How do Forex brokers make money?

Answer: Unless you are trading using a demo/paper account, the broker will charge commissions and fees - their service is not for free. 

Forex brokers make money in several ways:

  • Commissions. Many brokers charge a commission per trade. This is often very small and hardly noticeable. The commission is percentage-based, so the more significant the trade, the larger the commission. 

  • Spreads. All brokers have a spread. The spread is the difference between the market price and the price the broker is willing to buy and sell. These spreads vary from broker to broker. It is best to trade with a broker with tight spreads. 

  • Financing Costs. Brokers charge a swap/overnight rate on open trades. Sometimes, this overnight rate can be a rebate, meaning a payment to you rather than the broker. Brokers also charge a daily fee for holding trades overnight with leverage. 

  • Withdrawal fees. Some brokers charge a fee to withdraw funds back to your card or bank account. This is often a small administration fee. 

Forex brokers do not charge a monthly account or management fee. These fees are standard for stock trading accounts, sometimes called share dealing accounts, but are not standard for Forex trading accounts. 

Question: What are spreads?

Answer: All Forex brokers have spread. The spread is the difference between the exchange rate and the price the broker is willing to buy and sell. For example:

1. EURUSD is trading at 1.0850. This is the market price or exchange rate. 

Your Forex broker is willing to offer a buy price of 1.0851 and a sell price of 1.0849 - 1 pip on either side of the market price.

This is a 1 pip spread. 

2. USDJPY is trading at 158.75. This is the market price or exchange rate. 

Your Forex broker is willing to offer a buy price of 158.77 and a sell price of 158.73 - 2 pips on either side. 

This is a 2 pip spread. 

Spreads are often variable rather than fixed, meaning they constantly change based on market liquidity. When liquidity is low, such as during holidays and the Asian trading session, spreads can widen (get bigger).

It's best to use a Forex broker with tight (low) spreads, which do not widen much during lower liquidity. 

Question: What are swap rates?

Answer: Swap rates (overnight rates) are interest paid or earned on overnight Forex positions. The rate is calculated by comparing the central bank interest rate of the currency bought against the central bank interest rate on the currency sold. For example:

You are holding a long AUDCHF position. This means you bought the Australian dollar and sold the Swiss franc.

The current interest rate for Australia is 5.00% and 1.00% for Switzerland. 

This trade could incur a positive (interest earned) swap rate based on 5.00% earned annually on the currency invested and 1.00% paid on the currency sold. 

You are holding a long USDCAD. This means you bought US dollars and sold Canadian dollars. 

The US rate is 4.50%. The Canadian rate is 5.00%. 

This trade could incur a negative (interest paid) swap rate based on 4.50% earned but 5.00% paid. 

Please keep in mind that your broker will have variables that will impact the overnight calculation. For example, leverage financing charges may be included as part of the cost/refund, and your account currency may also impact the calculation. You can see an example of a swap rate calculation here

Holding positions intending to benefit from a positive swap rate is called carry trading

"When holding longer-term trades, it is essential to consider the swap rate. A sizeable negative swap rate can have a significant impact on profits. On the other hand, a significant positive swap rate can boost profitability and be an incentive to hold a position for longer "

Swap rates

Forex Brokers: How to trade using a Forex Broker

Question: What is a trading platform?

Answer: A trading platform is browser-based, desktop-based or a mobile app. It will display the list of currency pairs the broker offers and their buy and sell prices. The platform will include your account balance, open positions, trading history, price charts, and technical indicators. 

The most common Forex trading platforms are TradingView and MetaTrader 4. Most brokers will also offer their own in-house trading platform too. 

Question: How do I open an account and access the trading platform?

Question: What are CFDs? 

Answer: A Contract for Difference (CFD) is an over-the-counter product derived from an underlying asset. Forex brokers only offer Forex trading as CFDs. If you are in the UK, you'll also have the option of spread betting. 

In layman's terms, a CFD tracks the real market (underlying asset), but the buying and selling of CFDs is managed in-house, not on an exchange. 

Trading Forex CFDs is the genuine way for independent (retail) traders to trade Forex. There is nothing inherently wrong with CFDs. 

Below are the options available to you as a trader based on geographical location: 

 

Outside of the US - CFDs

Inside the US - Market

Inside the UK - CFDs and spread betting

Spread betting is another financial derivative managed in-house by the broker. Profits from spread betting are tax-free. 

Question: What is leverage?

Answer: Leverage enables a trader to trade on margin, i.e. fund only a percentage of an option position. You can learn more about leverage in my leverage guide

Leverage is displayed in ratios based on margin requirements. If only 10% of a trade/open position needs funding, the leverage ratio is 1:10. If it is 20%, then it is 1:5. A 1% margin requirement is 1:100 leverage. 

With leverage, a trader can take on larger position sizes, enabling them to take more trades and increase their potential reward. However, leverage also increases potential risk. 

Leverage should be fully understood before trading with a live account. 

Forex Brokers: Regulation & Forex Trading Scams

Question: Is it essential my broker is regulated?

Answer: Your Forex broker must be well-regulated. I cannot make it more clear. 

Strong regulation helps your trading funds be safe and provides a reliable trading experience. 

The best financial regulators are:

The FCA in the UK

The ASIC in Australia 

The CFTC and NFA in the USA

When choosing a Forex broker, ensure the broker is regulated. 

Question: How do I avoid Forex trading scams

Answer: There are scams in most industries. In the Forex industry, there are numberless scams that steal money from innocent people daily. A common Forex trading scam is fraudulent Forex brokers, who take your money and never return it or give their users a terrible trading experience. 

 

To prevent being a victim of a Forex broker scam, I suggest you do the following due diligence:

  • Is the broker well-regulated? Trade only with brokers that are regulated. FCA, ASIC, CFTC, or NFA regulation is best. 

  • Does the broker's website look legit? A website which seems too simple and has spelling errors is often a sign of a fake broker. 

  • Is the broker pressuring me to deposit funds? Genuine Forex brokers don't phone and email their clients and beg them to deposit capital. 

  • Is the broker offering to trade on my behalf? Honest Forex brokers do not trade on behalf of their clients. Do not invest with these "brokers". 

Forex Brokers: Choosing the Right Broker

Question: What should I look for when choosing a broker?

Answer: When choosing an online Forex broker, consider the following:

  • Regulation - how well-regulated is the broker

  • Spreads - how tight are spreads

  • Trading Experience - have I traded on a demo, and was the experience reliable

I have created a list of my top online Forex brokers below to provide reassurance. These are all genuine brokers with whom I trade daily.

Forex Broker Comparison

Broker: IC Markets 

Regulation: FSA

Commissions: Yes

Spreads: The best in the industry

Spread betting: No

Trading Platforms: cTrader, TradingView, MetaTrader ​

Open a demo account - click here

Forex Broker Comparison

Broker: Darwinex

Regulation: FCA

Commissions: Yes

Spreads: Very competitive 

Spread betting: No

Trading Platforms: MetaTrader ​

Open a demo account - click here

FCA Forex broker

Broker: CMC Markets 

Regulation: FCA 

Commissions: No 

Spreads: Average 

Spread betting: Yes 

Trading Platforms: Web Platform, Mobile App, MetaTrader ​

Open a demo account - click here

Forex Spread Betting

Broker: IG Markets

Regulation: FCA

Commissions: No 

Spreads: Slightly high

Spread betting: Yes

Trading Platforms: Web Trader, Mobile App, Pro Real Time, MetaTrader ​

Open a demo account - click here

Best Forex Brokers

Question: Which Forex broker is best for beginners? 

Answer: IG's spread betting web trader is best for new traders. The trading platform is very user-friendly, and opening an account is straightforward. 

Question: Which Forex broker has the lowest spreads?

Answer: IC Markets offer the tightest spreads in the industry. 

Question: Which Forex broker offers the most leverage? 

Answer: IC Markets offers up to 1:500 leverage - all other brokers on this page offer industry-standard - 1:30.

Question: Which broker is your favourite? 

Answer: CMC Markets is my favourite Forex broker. They offer the broadest range of markets and spread betting. Their platform is excellent. Withdrawals are quick. Spreads don't widen much during low liquidity. They are FCA-regulated. 

Broker Directory

Below are the most popular FX brokers. These are all market leaders. 

FCA-Regulated Brokers

City Index

CMC Markets

Darwinex

eToro

FxPro

IG

Oanda 

Pepperstone

Plus 500

Saxo Bank

Trading 212

ASIC-Regulated Brokers

IG

Oanda 

Pepperstone

Plus 500

Trading 212

NFA/CFTC-Regulated Brokers

IG

Oanda 

CFD Brokers

City Index

CMC Markets

Darwinex

eToro

FxPro

IG

Oanda 

Pepperstone

Plus 500

Saxo Bank

Trading 212

Spread Betting Brokers

City Index

CMC Markets

FxPro

IG

Pepperstone

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