Forex trading is an excellent way to invest money and gain returns. However, the process is daunting, especially for beginners.
A broker has a significant impact on your trading experience, affecting everything from withdraws to the amount of money you make. Consequently, finding the best forex brokers for beginners requires research, insight and careful analysis.
Want to find the best Forex broker for your needs? We’ll take you through the steps here.
If you’re new the foreign exchange trading environment (and even if you’re not), the right broker makes all the difference.
A forex broker acts as the in-between for you and the interbank, a global network of banks that trade to one another. Before brokers existed, a customer needed to be close to a bank in order to access the interbank at all.
Now, brokers provide this bridge for you, helping you find ways to diversify. Many are even located online.
How to Find the Best Forex Brokers for Beginners
The market is full of brokers, but some are better than others. Since your money’s at stake, it’s important to choose a broker that is reliable and who will fit your needs.
Follow our handy list to find the right broker for you.
1. Know What You Need
Before researching or testing out brokers, take the time to discover what you need. Ask yourself the following questions and make sure the broker you chooses can accommodate your needs:
- What currency pairs would you like to trade in?
- How tech-savvy are you? (This will help you decide if you like the platform you’ll work with.)
- How much are you going to trade? Most accounts require a $1,000 deposit to open.
Decide if you’ll need an ECN or a market makers account.
Market makers set the bid and ask price, using them to create transactions with their customers. They make money through spreads, the difference between the bid and ask price.
Market makers usually offer platforms that have free charting software and that are easier to use. However, they may provide worse bid/ask prices than you’ll find with ECN brokers.
ECN brokers display the best prices on their platform by assessing market makers’ and other traders’ prices, then deciding on bid/ask prices based on the information. They are ideal for day traders, those who capture small moves and scalp traders.
ECNs offer better bid/ask prices and have the added benefit of small or nonexistent spreads at times. However, their platforms are usually harder to use and traders must pay commissions for each transaction.
2. Check Regulations
Always take the time to check that the broker is regulated. This is a quick method to verify a company’s credentials and security.
In the US, firms must be regulated by The National Futures Association (NFA) or the U.S. Commodity Futures Trading Commission. Check with the Central Registration Depository (CRD), a database with information about US brokers, to verify the company’s credentials.
Try to choose a company that is regulated by a nation with an established and stable financial system, such as those in the following list:
- The US
- The UK
- New Zealand
Doing so will boost the chances that your broker is secure.
Use the web to your advantage to find a broker that offers the services you need. Read reviews, but keep in mind negative reviews don’t mean a broker isn’t reputable.
During this stage, check the business’s website. Is it professional? Is customer service available 24/7 or is it restricted?
Also, pay attention to educational divisions. Many brokers provide investment data to help beginner traders.
Once you’ve narrowed down your search results, it’s time to dig deeper into each company.
4. Compare Spreads and Commissions
One of the first things to look for is the broker’s spread. Most brokers make money from the spread, but the amounts vary by broker.
A rule of thumb for beginners is that the spread shouldn’t be higher than 5 pips for the major currencies. Double check that the spread is variable or fixed depending on your preference.
Some brokers work on commission, meaning the trader is feed for every transaction. This is helpful in providing an upfront cost for any actions, as spreads are often called “invisible money” because the price appears small but adds up quickly.
Always ask what fees you can expect with transactions and account costs.
5. Consider Leverage
Leverage amounts vary with each vendor, ranging anywhere from 10:1 to 100:1. This system is helpful to traders because it provides them with more money than they actually have in the account. In turn, brokers make more money because investors can trade frequently.
The leverage system works by providing additional funds from the broker for the trader to use. A 10:1 ratio means for every $1 deposited in the account, the trader actually has $10 of trading money.
Ask what leverage is offered, but be wary: leverage can lead to mounting loss as easily as it can lead to higher profits.
6. Be Careful of Bonuses
Many brokers offer additional bonuses, but be careful. Offers usually provide additional funds for deposits, but this leads to issues down the line.
The biggest problem is with withdraws. Because the broker’s money is mixed in with yours, you may not be able to withdraw anything.
With that being said, good bonuses exist that are helpful for beginners. The Forex No Deposit Bonus, for example, requires an individual open an account to receive $30.
While helpful, it’s wise to always ask about pitfalls that might occur down the road.
7. Understand Trade Disputes
As a trader, your broker is obligated to perform to a certain standard. If any disputes occur, every broker has a procedure investors follow to reach a solution.
Ask about your brokers’ dispute policies to fully understand what you may be up against in the event of a dispute.
8. Ask About Deposits and Withdraws
Some brokerages have long, intense deposit and withdraw procedures. Ask each broker about their process, identifying the steps necessary for each transaction.
Shop for convenience and speed, as issues depositing and withdrawing impact gains.
9. Test the Waters
Compare all the brokers you have researched, met with or called. Pick the one you think is the best fit and ask for a demo account.
These are mock accounts that give investors a better idea of what it’s like working with a particular broker and the platform. Give it a try for two or three weeks. If you’re still impressed, deposit a small amount of your capital.
If you are still happy after that, deposit the full amount a few weeks later.
A Home Run
Once you’ve found a broker you’re comfortable with, forex trading will be much easier and less stressful. The best forex brokers for beginners offer educational information, 24/7 customer service and convenient transactions.
Find the one that’s right for you by visiting our website. There, you can search for brokers across the US.
The time is well worth it. Remember: a good broker equals more knowledge, and that leads to more money in your pocket.