Best Forex Brokers 2019: Fees & Comparison - All You Need to Know - Blockonomi

Best Forex Brokers 2019: Fees & Comparison - All You Need to Know - Blockonomi


Best Forex Brokers 2019: Fees & Comparison - All You Need to Know - Blockonomi

Posted: 17 Apr 2019 04:43 AM PDT

Are you interested in the biggest, most liquid markets there is?

The FOREX market, or FOReign EXchange market, has a daily turnover of more than $3 trillion USD. That figure makes it the biggest and most liquid market on a cash basis. With the exception of the 'weekend lull', the FOREX market is open 24/7 and trading all the time.

Many people are attracted to the FOREX market because they think it is possible to make a lot of money very quickly, and to some degree, this is true. The amount of 'leverage' that FOREX brokers will let their clients use is unmatched, but using huge amounts of borrowed money is a double-edged sword.

While there are FOREX brokers that are well regulated, there are also an enormous number that aren't located in developed nations, and operate outside of any regulation or law. Before you start trading FOREX, or give away your personal information to a 'broker', it is a good idea to learn a little bit more about the industry.

We have put together this guide to help you find the best forex broker for you, there are a lot of different variables and options to consider and here at Blockonomi we have spent the last year reviewing and rating many brokers, this post is a break-down of what we learned and an aim to provide the most useful list available.

We have researched most brokers on the market currently, conducting in-depth reviews of over 20 different brokers and written 100,000 words on the subject.

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Guide by Oliver Dale

This guide was put together by Oliver Dale, Editor-in-Chief of Blockonomi & MoneyCheck and founder of Kooc Media. An experienced investor in the financial and cryptocurrency markets for over 15 years. It is the result of hours of testing and hundreds of thousands of words in our reviews here on Blockonomi.com

Top Forex Brokers

We have reviewed all the major Forex brokers and have picked the following companies as our top recommendations. These brokers are all well established, regulated in major jurisdictions around the world, provide good asset coverage and top rate trading platforms.

What is FOREX Trading?

At its most basic level, FOREX trading is speculating on the value of global currencies.

The biggest players in the FOREX market are money center banks and central banks, like the Federal Reserve in the USA, or banks like Barclays. For bigger financial entities, the FOREX market is a way to move money from one country to another.

A bank also may need to hedge their exposure to a foreign currency or help one of their clients do the same thing. While this is part of what the FOREX markets do, there is also a lot of speculation by major investors and trading desks at big banks and hedge funds.

Unlike equity or debt markets, FOREX markets operate via contracts that rely on the price difference between two currencies to have value. These derivative contracts are how FOREX trading happens, no matter how big or small.

For example, a trader may want to gain exposure to the US Dollar, but that must happen as a result of the US Dollar appreciating against another currency. The most liquid currency pair on the planet is the US Dollar/Euro, which is abbreviated with the currencies' ISO codes as 'USDEUR'.

Major banks and hedge funds often buy FOREX contracts that will deliver the currency to their account. Most retail FOREX brokers don't offer this kind of derivative contract and are designed for currency speculating.

What is Forex Trading

Read: Our Complete Guide to Forex Trading

How Does FOREX Trading Work?

For the individual FOREX speculator, trading usually involves the use of borrowed money, or 'leverage'. Depending on what FOREX broker you choose to use, the amount of leverage can range from 2 or 3 times (2x or 3x) the money you have deposited, up to 500x depending on the regulations.

Regardless of the leverage, a FOREX trade starts by either buying or selling a currency pair. The currency pair will be quoted with a selling and buying price, for example:

EURUSD 1.3415/1.3418

The selling price is almost always given before the buying price, but it is a good idea to make sure.

In any event, the selling price will always be lower than the buying price. Once you decide which way you are going to trade the currency pair, you will either buy or sell it at the prevailing market price (assuming you don't use a limit order, but more on that later).

In this example will assume that you decided to buy the pair at 1.3418.

Welcome to the Wonderful World of Pips

The classic lot size in the world of FOREX trading is 100,000 units for most major currencies. That means that when you opened the trade described above, you bought a contract that will track the performance of 100,000 Euros against the market value of the US Dollar.

Today, there are many brokers that use smaller lot sizes. However, for this example, we will use the classic lot size of 100,000.

Instead of being denominated in currency units, like shares, or an interest rate, like bonds, FOREX contracts are denominated in 'Pips'.

For the 100,000 Euros that are the basis of our example trade, one pip would be equal to 0.0001/1.3418, or 0.00007452675. That tiny number is then multiplied by 100,000 (the lot size) to arrive at 7.45 Euros, which is the value of a pip in this example.

In plain English, for every digit up or down in the fourth position from the decimal point moves (0.000X), the value of the contract will change by 7.45 Euros. It isn't hard to see how loads of money could be made or lost in the FOREX markets, and why there are so many brokers out there!

FOREX Market Regulations

The Financial Conduct Authority (FCA) is responsible for regulating FOREX brokers, and it is a very good idea to limit your choice of brokers to firms that are fully regulated here in the UK.

There are some brokers that are regulated in other responsible jurisdictions (like the US or Australia), though every country will have some variances when it comes to the rules and how they are enforced. Using an unregulated broker is generally legal, but it can be dangerous, as the broker will be operating with little, if any, oversight.

The FCA has an extensive set of rules for FOREX brokers. Any FOREX broker in the UK must be fully licensed by the FCA, and will fall into one of three categories:

  • Dealer License Any broker that holds a Dealer License from the FCA can engage in market making activities, and can also hold client funds along the regulations set forth by the FCA. It can also run a 'B-book', which allows the broker to act as its client's counterparty, instead of brokering the trade on the open market.
  • Intermediary License An intermediary license from the FCA will allow a broker to operate a 'matched-principle' model brokerage that is limited to Straight-Through-Processing (STP) of orders. The difference between a market-making and STP of orders will be covered below.
  • Restricted Broker License A broker with this license can act as an marketer for FOREX brokers, but can't hold client funds. This class of broker is more like an intermediary between retail clients and brokers that handle trades, more than a 'broker' in the normal sense of the word.

Every Class of Broker is Different

Any broker that holds a Dealer License or Intermediary License could also issue and trade in Contracts for Difference (CFDs), whereas a broker with a Restricted Broker License could market the services of a broker who has a wider range of trading instruments.

The capital requirements for all three classes of dealers are also different and may change in a post BREXIT world. For now, to hold a dealer license the minimum capital requirement is EUR 730,000. An Intermediary License holder will need EUR 125,000, and a Restricted Broker License, requires EUR 50,000.

FOREX brokers that are regulated by the FCA will have have to demonstrate that their "mind and control" is in the UK, and this means a physical presence and staff on the ground. The Compliance Officer and Chief Executive Officer have to be in the UK, and both will have to pass tests to ensure their competency.

The process for becoming an FCA regulated FOREX broker is no walk-in-the-park, which is why it is worth shortlisting brokers who are willing to comply with FCA regulations.

What Are CFDs

Read: What are CFDs? Guide to Contracts for Difference

Best Copy Trading Brokers

Some brokers offer a featured called copy trading or social trading, which allows you to "copy" another member's trades. Thanks to the progression of trading platforms and the spread of social media, more and more brokers are now building this feature into their sites.

The idea is simple and quite brilliant, you can sign up to follow or copy a certain trader and your trades will mirror theirs. The stand out broker who pioneered this concept is eToro.

Broker Regulation Asset Coverage Leverage Trading Platforms
eToro Review
eToro
  • CySEC (Cyprus)
  • CFDs
  • ETFs
  • Forex
  • Cryptocurrency
  • Shares
  • Commodities
  • Indices
  • Proprietary Web
  • Mobile Apps

Pepperstone
  • ASIC (Australia)
  • FCA (UK)
  • Forex
  • Indices
  • Precious Metals
  • Energy
  • Commodities
  • Cryptocurrencies
  • 30:1 Retail
  • 500:1 Professional
  • Web Trader
  • MetaTrader 4
  • Meta Trader 5
  • cTrader
  • cAlgo
  • cMirror
FXTM Review
FXTM
  • FCA (UK)
  • CySec (Cyprus)
  • Forex
  • Indices
  • Commodities
  • Spot Metals
  • Shares
  • Cryptocurrencies
  • 30:1 Retail
  • Up to 1000:1 Professional
  • MetaTrader 4
  • MetaTrader 5

Risks Involved in FOREX Trading

Highly-leveraged retail FOREX trading isn't inherently risky in the same way that driving F1 cars professionally isn't inherently risky. Regulated FOREX brokerages are required to report how many of their clients lose money on their platform, and most are well above 75%!

There are a few reasons why retail FOREX trading can be extremely dangerous for your fiscal health. Using high amounts of leverage is probably the most prominent reason, but the difficulties connected with trading macroeconomics directly are also pretty substantial.

Don't go into the FOREX market blind, do your homework and learn as much as you can!

Understanding How Leverage Works

Let's go back to the example trade of a standard lot of 100,000 EURUSD bought at 1.3418. If the position was bought in cash, there would be no leverage, and you could theoretically hold the position for as long as you would like.

For that matter, you could just buy 100,000 Euros and park them in a German bank account, and wait for the US Dollar to fall (then send the cash back to the US). This approach is seldom the case with retail FOREX trading. Instead, traders use borrowed money to buy a contract.

In this example, let's say that you used 100x leverage to buy the contract. That means that you used 1,000 Euros to buy a contract that is worth 100,000 Euros. As we established above, one pip would be worth 7.45 Euros, which means that a movement from the purchase level of 1.3418 to 1.3315 would result of a loss of 748 Euros (or more than 70% of the money you started with).

In some cases, brokers will allow the use of 500x leverage, which would mean that the loss in the above example would be 5x higher, or 3,725 Euros (or more than 3.7x the money you started with). In most cases, a broker would force you to sell your position if your losses exceed the value of the account.

Depending on how the market is trading, you may end up owing your broker money, because it had to sell the position at a lower level to close it out as soon as possible.

The Manic Macro Environment

There is no shortage of factors that can move exchange rates on a daily basis. Depending on the strategy that a FOREX trader uses, data could make a huge impact on how the market trades. If something unexpected happens in the geopolitical environment, that can also make exchange rates jump in unknown directions.

Ultra short-term FOREX traders (scalpers) are more or less immune from the macro factors that affect medium-term traders. In fact, some scalpers use the release of market data to make their trades.

The takeaway from all this should be that using loads of leverage to trade in a market that is extremely unpredictable is very risky. Not only can you lose all the money in your brokerage account, but you can also end up owing your broker loads of money you may not have.

Common Trading Platforms & Software

There are a few industry standard trading platforms for the FOREX market, and some brokers have also created their own platforms that get great reviews. The vast majority of platforms will look and feel like Meta Trader 4 (MT4), which was the go-to platform for decades.

  • MT4 Meta Trader 4 was released back in 2005 by Metaquotes Software, and has become the most widely used (or copied) FOREX trading platform there is. As a result of its popularity, there are countless programs that have been designed to work with MT4. Some create trading signals, and others are trading bots that make trades based on algorithmic models.
  • MT5 Meta Trader 5 was created to be the successor to MT4, but it hasn't been the knock-down success that many thought it would be. While MT5 does offer some features that MT4 lacks, many of the third-party programs made for MT4 won't work with MT5. Most major FOREX brokers will allow you to choose which platform you want, and there really isn't a one-size-fits-all solution.
  • Currenex Currenex isn't going to be a good fit for smaller retail traders. Instead of dealing with your broker, Currenex connects you with market liquidity providers (full ECN), and usually requires $20,000 USD to start using the platform. On the plus side, you will be getting the actual market rates for currency pairs, which is attractive for bigger traders.
  • Proprietary Platforms Many of the larger FOREX brokers have created their own trading platforms or advanced options that work with MT4. Each one of these platforms will be different, and your broker will be able to explain the different trading platform options you can use.

How Brokers Make Money

Every single FOREX broker is going to have a different way of doing business. Some may offer zero fee trading and make their money from the spreads (more info below), while others will charge a flat fee per trade, and offer tighter spreads.

It is a very good idea to learn about which kind of FOREX trading strategy fits your goals before you decide on a broker. Some brokers have special account types for scalpers, while others ban the practice outright!.

  • Fees & Spreads There is no way to give a comprehensive description of all the ways that brokers apply fees to FOREX trading. We will concentrate on some of the most important terms, so you can sort through a broker's fee structure before choosing to give them your business.
  • Spread The spread refers to the difference between the bid and ask price for a FOREX contract. In the example used earlier, the price was quoted as: EURUSD 1.3415/1.3418 The spread between the two prices is 3 pips, which would have a value of EUR 22.35 on a standard lot of 100,000 Euros. In a practical sense, the spread determines the value of your contract, which is important to keep an eye on. If the spread widens substantially, it could force a margin call from your broker. Every broker will have different policies on how margin calls work, but it is important to understand that when spreads widen, you could be in for some trouble. Low market liquidity or major events can cause spreads to widen, and the only way to protect yourself is to use smaller amounts of leverage.
  • Broker Fees Every FOREX broker will have a fee structure, and it may vary based on the account type you select to use. There are four main ways that FOREX brokers make their money:
  • Trading Fees Much in the same way that a stockbroker will charge a client when they buy or sell a share, a FOREX broker can charge you when you open or close a position. Some may have trading fees that are based on the lot size, while others may offer flat fees regardless of how much you buy.
  • Spread Markups One of the ways that FOREX brokers offer 'zero fee' accounts is by using larger than normal spreads to make money. If the broker is able to buy the EURUSD contract at 1.3417 and sell it to you at 1.3418, they will make money. Many brokers offer accounts for new FOREX traders that use this system, as it is far more simple.
  • Financing If you plan to hold on to a leveraged position for more than a single trading day, your broker will charge you interest on the money that you are borrowing to keep the position open. The amount a broker will charge varies, but it is generally in the single digits on an annual basis.
  • Commissions Instead of charging a flat fee for FOREX trades, some brokers use a commission-based model to make money. The client will pay a small percentage of their trades, usually measured in basis points, to the broker. Be sure to talk to your broker before you start trading so you understand all the additional fees that you will have to pay!

What to Look For in a Broker

Every FOREX trader will have different needs from their broker. One of the most important things to do is decide on how you want to trade the FOREX market and base your choice in broker on your trading habits.

Clearly, you will also need to know that you are doing business with a reputable broker that will treat you fairly, and pay you when you ask to withdrawal money. Some brokers will charge you when you deposit or withdrawal money, and this is important to consider.

If you plan on making weekly contributions to your trading account, a broker that makes you pay to deposit funds isn't going to be a good fit!

It is also worth mentioning that there are many unscrupulous operators in the online FOREX industry. Some will refuse to allow you to withdraw money, and other operations are designed to steal your identity and financial information outright.

Dealing with a broker who is regulated by the FSA basically removes these risks. That is why regulation is so important, especially in an industry which has seen an influx of bad actors over the last decade.

Account Types / Demo Accounts

Today, major FOREX brokers will have some sort of multi-tiered system for client accounts. There is generally an account that is aimed at smaller traders, or people who are just starting out in FOREX trading. These lower-level accounts generally have 'zero-fee' models which make money from marking up the spread or dealing directly with the broker.

There are two different ways to trade in FOREX. One is called ECN (Electronic Communication Network) trading, and this means that you are actually dealing with a counterparty that isn't your broker.

The other form is called 'market-maker' trading, and this means that you are trading directly with your broker. In other words, if you make money, your broker loses it. There is a substantial debate about how honest market-makers really are. If you are dealing with a regulated broker, and there is an issue, you have some legal recourse.

In any event, every broker listed below will allow you to open up a demo account before you start trading with your real money. Some brokers will let you demo its platform for months, while others will give you as little as a week.

Even if you have loads of experience trading FOREX, it is a good idea to use the demo account for a little while, and make sure you understand how everything works!

Order Types and Execution

When you are ready to trade, you will have a few different options in how you buy or sell a FOREX contract. The simplest way to trade is to use market orders, which the broker will fill at the current market prices.

Keep in mind that the market prices may change before the broker can fill your order and that the price you pay can change.

If you need to be sure your order is being filled at a certain price, you can use limit orders to try and buy or sell a contract at a given level. All you have to do is tell the broker what level you would like to buy or sell the contract at, and if the market moves to that level, it will be executed.

One of the most important orders there is in FOREX trading is the STOP LOSS order.

A stop loss order allows you to set a predetermined level at which your trade will be closed. This will make sure you don't lose more money than you can afford to do without, or get caught pumping money into margin calls for a trade that will end up eating you alive.

The TAKE PROFIT order is the positive opposite of the STOP LOSS order, and lets you sell your winning position at a given level of your choosing.

Customer Service

FOREX firms have mixed reputations in the area of customer service.

Many FOREX brokers have only been around for a few years, and their turnover of clients is generally high. Once someone loses all their money in a single trade, they rarely come back for more.

Some of the bigger firms tend to deliver great service to their larger clients, while smaller accounts will struggle with getting their complaints heard. There are numerous things that can affect the FOREX market, and the broker may not be able to control all of them.

For example, if you are using an ECN broker, and the spreads widen after an economic announcement was made, the market action is beyond the control of the broker. It is important to get a feel for what a FOREX broker can and can't do, before reading the huge number of FOREX broker reviews online.

Again, we highly recommend you limit your choices to brokers that are regulated by the FCA, or a similar authority in an established jurisdiction.

Conclusion

Statistically speaking, the vast majority of FOREX traders will lose money in the market. Part of this has to do with what actually drives FOREX market movements, and part of it is the eye-watering amount of leverage that retail investors are offered by many FOREX brokers.

Over the last two decades, there have been numerous new FOREX brokers entering the marketplace, which has democratized FOREX trading to a much greater degree than ever before. Some brokers will allow you to start trading with as little as $50 USD in your account, which can then be leveraged up to as much as $25,000 if 500x leverage is permitted by the regulator.

The 20% (approximately) of the FOREX traders that make money probably aren't using huge amounts of leverage, and also have years of experience in both macroeconomics and how FOREX markets actually work. The good news is that with smaller account sizes on offer, younger people can get into the market and start learning with far less money than ever before.

If you decide to start trading FOREX, use this article as a starting point for your learning. If you go into the FOREX market with little knowledge, and big expectations for profit, you will probably be unsuccessful.

However, it is worth noting that when FOREX trading strategies are combined with a high level of geopolitical and economic knowledge, the potential for profit is enormous. That is how George Soros made more than a billion US Dollars in one day when he 'Broke the Bank of England'!

Guide: How To Choose the Best Forex and CFD Broker in 2019 - FX Empire

Posted: 11 Apr 2019 05:36 AM PDT

ecnThe Forex market is the world's largest financial market with a turnover in excess of around $4 trillion a day. Despite its huge size, this market has no central exchange for Forex traders to conduct their transactions. Instead, Forex traders must conduct their trading activities through an intermediary, the Forex broker. This shows the importance of the broker's role in the trading process. When it comes to choosing a broker, traders have literally thousands of Forex brokers to choose from on the internet. But the real question is how can you be certain that the broker you have chosen is the right fit for your trading needs.

To help you in your broker selection process, we have prepared a guide with a list of key factors that you have to look at when choosing a broker.


Guide Sections


Regulations

The first thing that you should look at when selecting a broker is to see if the broker is regulated by a competent regulatory agency(read more about Forex and CFD broker regulations). By dealing with a regulated broker, you can have the assurance that the broker has met the operating standards imposed by the regulatory body. Some of these standard regulatory requirements include having adequate capitalization and maintaining segregated accounts in order to protect the clients' funds. Additionally regulation offers fund protection should the firm become insolvent and ensures the broker is upholding rigorous standards as a financial service provider.

Countries that have financial regulatory agencies that are backed with strict regulatory enforcement include:

  • Australia  (ASIC)
  • Eurozone (Mifid and local regulators)
  • India (SEBI)
  • Japan (FSA and JSDA)
  • Switzerland (FINMA)
  • UK  (FCA)
  • USA (CFTC and SEC)

Discover the best regulated forex and CFD brokers

Trading Platform & Software

As the trading platform is your gateway to the market, you want to ensure that the trading platform that you are using can be relied upon. Most brokers will offer traders a selection of trading platforms to choose from. Most of the time, the trading platforms are provided by third party trading solutions providers such as MetaQuotes Software. There are also some brokers who have taken to developing their own proprietary trading platforms in an attempt to differentiate themselves from other brokers in the industry. Often times, these proprietary platforms are the best platforms to trade with as they are specifically designed by the broker's client base.

Nevertheless, a good broker should be able to provide a good selection of platforms. This is because some traders prefer to trade from the desktop computer and some traders prefer to trade from their smartphones. It should be noted that the most common trading platform that you will find among the different brokers in the industry is the MetaTrader 4 platform. It is estimated that at least 85% of brokers in the industry uses the MetaTrader 4 platform. So this means there is a very strong possibility that this is one of the platforms that you will be using.

Additional Features

Look at the features which the trading platforms have to offer. Do they come with:

  • Comprehensive charting package
  • Wide range of technical indicators
  • One click trading on the trading platform
  • Risk management tools such as stop loss order and trailing stops.

While all these may seem trivial initially, they will later play a crucial part in ensuring that you will get to enjoy a seamless and productive trading experience.

But when it comes to platform selection, it is really a matter of personal choice. Most of these platforms will have the same basic features. The best way for you to find out which platform is right for you is to try them out with the demo account provided by the broker. For those brokers that do not provide a demo account, they may not be worth considering.

Commissions & Spreads

This market unlike other traditional financial markets mostly operates on spreads rather than commissions. This is the reason why most brokers advertise their services as being commission free.

So how do brokers make money?

Simply, they earn by charging traders a spread. The spread is the difference between the buying price and selling price. For example if the Bid & Ask price for the EUR/USD currency pair is 1.0875/1.0878, this means the spread is 3 pips.

As a Forex trader, you will come across 3 kinds of trading cost structure charged by a broker:

  • Fixed spread – where the spread is not changing and you know the spread amount before you trade.
  • Floating spread – this spread is variable and always moving depending on the market volatility.
  • Commission fee – this is calculated as a percentage of the brokers spread. You should be aware of the amount payable before you trade.

Generally for traders looking for certainty with their trading costs, fixed spreads will be the preferred choice. Traders who are looking to pay a smaller spread would prefer floating spreads. Ultimately as to which is better will depend on your specific trading needs.

The kind of spreads that you will receive depend to a large extent on the kind of business model the broker is operating on.

Broker's Business Model

In the course of your search for a broker, you will come across terms like "STP", "ECN", "NDD" and "Market Maker". All these terms are in fact used to describe the business model which the broker is operating by.  So what do they all mean?

There are two major types of broker – Dealing Desk and Non Dealing Desk.

Dealing Desk

Forex dealer or Market Maker processes their clients trading instructions through a dealing desk within their company. A dealing desk broker takes the other side of the trade to you, meaning when you open a position like the EUR/USD the trade will be executed by the broker and they are then exposed to that trade.

Non-Dealing Desk

A Non-Dealing Desk (NDD) broker passes the trade straight through to a third party. There are two kinds of NDD broker (ECN and STP). They are both essentially the conduit between you the trader and the market maker or dealer.

ECN

With the first type (ECN) when you press "Buy" on your trading platform, your trade orders will be processed on the broker's computer trading system automatically and transmitted through the Electronic Communications Network (ECN) without a dealing desk (This is where the term "Non Dealing Desk" (NDD) comes from).

What is ECN Trading and What are its Advantages?

STP

With the second type of NDD broker, upon receiving your trade orders they will pass the trade orders directly to another party to be executed by the market maker's dealing desk. In this instance, the broker is known as a Straight Through Processing (STP) broker.

Both the Forex ECN and STP brokers are intermediaries to several dealing desks or market makers in the global Forex market. Market makers or dealers will transmit their pricing to the ECN or third party liquidity provider together with the volume which the quote is valid for. The ECN/STP will in turn distribute the pricing to traders/market makers linked to the system. It should be noted that the ECN/STP does not execute trades but rather acts as the conduit for transmitting the trade orders from the trader to the dealing desk where the trader took the price from.

Why is this important?

The business model of the broker is important as this will affect the kind of spreads that you will receive and whether the spread will be fixed or variable.

Forex Broker for Beginners

For beginner traders, look for brokers with the following qualities:

  • Comprehensive trading education resources – many brokers supply a suite of education materials to help push traders into mastering their skills. These usually include webinars, videos, courses, guides and articles.
  • Unlimited access to the demo account for practice trades – most if not all Forex brokers supply demo-trading accounts to their clients. This is particularly useful if you are new to the world of Forex trading or if you'd like to test-drive a broker's platform before you trade for real.
  • User friendly trading platform – there are a whole host of trading platforms on the market, some more complicated than others. As a beginner trader you will not need a complicated platform with features like EA's and complex trading strategies. That comes later, but now you should be looking for a platform that is fast and simple to grasp.

Forex Broker for Professionals

For professional traders, their trading needs differ significantly from those of a beginner trader. Generally, professional traders prefer brokers which can provide them with:

  • Comprehensive trading tools – as a professional trader you will now need a variety of tools including commission calculator, economic calendar and of course complex live charts in order to implement trading strategies.
  • High leverage – not for the faint hearted, professionals will seek to use leverage in order to multiply their capital. Leverage increases the risk and equally increases the reward.
  • Low spreads – if you trade a lot you want to ensure that your spreads aren't eating away at your capital. It's important to check the spreads payable before you select a broker, usually the greater the account type you take the lower are your spreads.

Forex Broker for Day Trading

Generally for a day trader, most brokers will be able to meet their trading needs. However given the shorter time period with day traders are trading with, it is best that the broker is able to provide a diverse range of instruments for the day trader to scout for trading opportunities. These can include a signal service, tools like an economic calendar, updating market news and also earnings reports. As you will probably be placing more short term trades make sure that you are aware of the spreads before you trade.

Forex Broker for Scalping

Scalpers are traders who hold their market positions for an extremely short period. While they only hold a market position a short period of time, the frequency of their trades is higher than the average trader. Their objective is only to make a small profit on all the trades that they make spread across a large number of trades. Note that not all brokers allow scalping. As such if you intend to trade as a scalper, you should always check with the broker that you intend to sign up if they allow scalping.

Account Types

The majority of the forex brokers in the industry offer traders a selection of trading accounts to cater for different categories of traders.

  • Micro Account – The smallest type of trading account is the Micro trading account where one trading lot is equivalent to 1000 units of the instrument traded.
  • Mini Account – The next type of trading account higher up the hierarchy is the Mini account where one lot represents 10,000 units.
  • Standard Account – The standard account is where one lot is equivalent to 100,000 units.

With the Micro and Mini account, only a low minimum initial investment is required to let you start trading. With the standard account, although the minimum investment may vary from broker to broker, generally you will need a higher amount of trading capital. Given the varying minimum investment for each type of trading account, you should select the trading account that is commensurate with your investment capital.

Customer Service

Most beginner traders tend to forget to factor in customer service when making their choice of the broker to sign up with. They may not realize the importance customer service plays in their overall trading experience. With customer service, it is not whether you will ever need their assistance but rather a question of when you will need their assistance. Because regardless of how experienced or knowledgeable a trader might be, there will always come a time when assistance from customer service is required. When that time comes, you want to be able to get in touch with the support team without any difficulties. So it is important to check if the broker that you intend to sign up with is able to provide you with reliable customer support.

Check to see if there are multiple ways of contacting customer support. Most brokers will provide their clients with several ways such as email, live chat and telephone for their clients to get in touch with customer support. In short, you don't want to be in a position where you have to spend countless nights worrying about what your broker is going to do with your problem.

Value Added Services

In an industry as competitive as the online forex trading industry, some brokers will try to distinguish themselves from other brokers, by offering additional value added services such as free market analysis, real time news feeds and trading signals. Most of these value added services are provided free of charge but there are some brokers which may require you to deposit a minimum amount before you can have access to these services.

Questions to Ask the Broker

If you have any general questions regarding brokers we can usually advise and recommend, however for more specific information you can read our broker reviews for deep insight. Our video reviews cover many aspects of the trading cycle. Please note, it is important that if you have any doubts about a broker's product offerings or service, by asking the right questions you can clear up any ambiguity that you might have before they develop into an issue later after you sign up.

The kind of questions that you should ask include:

  • How the broker maintains the safety of your funds
  • The broker's regulatory status
  • The range of instruments that is available for trading
  • Their business model
  • Their customer service hours
  • Their deposit and withdrawal process and whether there any fees involved
  • Whether there are any conditions attached to the value added services provided

Q&A

  • How Can I Choose A Broker?

We are here to help with that! Check out our list above and choose the most suitable broker for you.

  • Should I Pick a Regulated Broker?

Yes, you should try to pick a regulated broker to work with. This ensures recourse in the event of a dispute or should your broker face insolvency. Remember by using a regulated broker you will also have access to an investor compensation fund, which insure your deposit up to a certain amount.

  • What Else Should I Look at When Selecting a Broker?

You should look at the range of platforms on offer and even ideally test-drive the platform you may wish to use. Take a look at the additional resources being offered by that broker eg. Signal service, educational tools, copy trading. Finally remember to find out about spreads, and account types before you place a deposit.

Conclusion

As noted above, there are many factors that you have to consider when selecting your broker. Nevertheless with the help of this guide that we have provided, you should be able to see which broker is better suited to your needs. To further facilitate your search, we have also conducted in-depth reviews and vetted each of the brokers in our recommended list to ensure they meet up the right standards. Once you have found the right broker to work with, you can focus more on your trading activities and trade more confidently thereby increasing your chances of success trading the market.

Click here to discover the best forex and CFD broekrs

How to Calculate Pips in Forex Trading: A Guide for Beginners - Benzinga

Posted: 10 May 2019 12:08 PM PDT

Pip is one word you'll likely hear in any conversation about forex trading. One of the first subjects you'll learn in most forex trading courses is just what a pip is and how to calculate pips.

A pip is an acronym for point in percentage and it represents the smallest whole unit of movement in a currency pair's exchange rate.

What Does Pip Value Mean?

The "pip value" of a given trading position is its change in value due to a one-pip move in the relevant foreign exchange rate, all other factors remaining equal. The currency that a pip's value is expressed in should be your account's base currency. This means the numeric pip value of a position can vary depending on which base currency you specify when you open an account.

If you trade in an account denominated in a specific currency, the pip value for currency pairs that do not contain your accounting currency are subject to an additional exchange rate. This is due to the fact that you need to convert pip value into your accounting currency to compare it with the pip value of your other positions.

In practice, this means that the numerical pip value for a trade in EUR/GBP, for example, will generally be higher than for pairs with the U.S. dollar as the base currency because the pound sterling (GBP) trades at a higher relative value than the U.S. dollar.  

This also means that trading EUR/GBP in a single full lot of 100,000 euros can have a more capital-intensive effect on the margin required to hold that position than, for example, trading a one lot of $100,000 of the U.S. dollar against the Mexican peso or USD/MXN. Due to the Mexican peso's low value, the pip value for a $100,000 or full lot trade in USD/MXN is only about $0.53 compared to $13.17 for a full lot of 100,000 euros in EUR/GBP.

Step-By-Step Calculation with Examples

Step 1: Determine the pip size. It is 0.0001 for all currency pairs other than those that contain the Japanese yen when it is 0.01 due to the relatively low value of the Japanese yen.

Step 2: Determine the exchange rate.

Step 3: Use this general formula for calculating the pip value for a particular position size:

Pip value = (pip size / exchange rate) x position size

Step 4:  Convert the pip value into your accounting currency using the prevailing exchange rate.

Pip Value Calculations Examples

For pairs with The U.S. dollar as the counter currency

The same pip values apply to all currency pairs with the U.S. dollar traded as the counter currency in an account denominated in U.S. dollars. Major currency pairs such as EUR/USD, GBP/USD, AUD/USD and NZD/USD all have the U.S. dollar as the counter currency.

Basically, the movement of a currency pair such as EUR/USD from 1.2000 to 1.2001 would represent a one pip rise in the exchange rate, so the pip size in EUR/USD is 0.0001. This one pip movement would equal a shift in value of $0.10 on a micro lot of 1,000 euros, $1 on a mini lot of 10,000 euros and $10 for a full lot of 100,000 euros.  Those would be your pip values when trading in a U.S. dollar denominated account.

Therefore, to calculate the pip value for EUR/USD when the pip size is 0.0001, the spot rate is 1.12034 and you are trading a position size of €100,000, you would plug that information into the formula shown in Step 3 above as follows:

(0.0001 / 1.12034) X €100,000 = €8.925861791956013

Performing that calculation yields the pip value of €8.925861791956013. If you then want to calculate the U.S. dollar amount of this pip value, you must take the pip value of €8.925861791956013 and convert it into U.S. dollars by multiplying it by the EUR/USD exchange rate of 1.12034 as follows:

€8.925861791956013 X 1.12034 $/€ = $10

Therefore, the pip value for a position size of €100,000 when the EUR/USD exchange rate is trading at 1.12034 is €8.925861791956013 in a euro-denominated account or $10 in an account denominated in U.S. dollars.

Pip Calculator

A pip calculator showing the above calculation with results rounded off. Source: XM.com

For pairs with the U.S. dollar as the U.S. dollar as the base currency

Most other currency pairs have the U.S. dollar as the base currency, such as USD/JPY and USD/CAD, for example, and they have different pip values. To calculate the pip value where the USD is the base currency when trading in a U.S. dollar-denominated account, you need to divide the position size by the exchange rate.

For example, if the USD/CAD exchange rate is trading at 1.3000 and you have a $100,000 position, then the pip value is one pip or 0.0001 x $100,000 equals CAD$10 since the Canadian dollar is the counter currency.

If you then wanted to convert that pip value into U.S. dollars, you would need to divide by the USD/CAD exchange rate of 1.3000 Canadian dollars per U.S. dollar, thereby yielding a USD pip value for that $100,000 position of $7.692307692307692.

To find the pip value of a currency pair where neither currency is the account currency, for example, when you are trading the EUR/GBP cross currency pair in a U.S. dollar-denominated account, you multiply the standard 10 pip value per full lot by the counter currency/account currency exchange rate, or GBP/USD in this example. If the GBP/USD rate is 1.3000, that gives you a pip value of 10 x 1.3000 or $13 for a EUR/GBP full lot position of 100,000 euros.

Pip value calculation shortcuts

In general, if you trade in an account denominated in a particular currency and the currency the account is denominated in is the counter currency of a currency pair, then a short cut to the pip value calculation exists that is rather easy to remember. Basically, positions in that pair will have a fixed pip value of 0.10, 1 or 10 counter currency units respectively, depending on if you are trading a mini, micro or full lot.

For example, if your trading account with an online broker is funded with U.S. dollars, then any currency pair with the USD as the counter currency, such as EUR/USD, GBP/USD, AUD/USD or NZD/USD, will have a pip value of $0.10 for a micro lot of 1,000 base currency units, $1 for a mini lot of 10,000 base currency units or $10 for a full lot of 100,000 base currency units.

To find the pip value when the USD is listed as the base currency, as in USD/JPY or USD/CAD, for an account denominated in U.S. dollars, divide the above-listed standard pip values per lot by the relevant exchange rate.

Thus, if you are trading a full lot of $100,000 in the USD/CAD pair, then you divide the standard 10 pip value per full lot by the USD/CAD exchange rate. If the USD/CAD pair is trading at 1.3400, you will arrive at the correct pip value of 10 / 1.3400 = $7.462686567164179 or $7.46 per full lot when trading in an account denominated in U.S. dollars.

How Is Pip Value Used in Forex Trading?

Pip values give you a useful sense of the risk involved and margin required per pip when taking a position in currency pairs of similar volatility levels. Without performing a precise calculation of the pip value in a currency pair, an accurate assessment of the risk you are taking by holding a position in a given currency pair cannot be made.

In addition, since forex transactions are typically leveraged, the pip value of positions gets multiplied by the amount of leverage used. By knowing the pip value of a currency pair, you can use money management techniques to calculate the ideal position size for any trade within the limits of the size of your account and your risk tolerance. Without this knowledge, you might wind up taking either too much or too little risk on a trade.

Start Building Your Trading Plan

In order to build a comprehensive and effective trading plan, incorporate sound money-management techniques that include position sizing.

Knowing the pip value of each currency pair you trade or plan on trading expressed in your account currency gives you a much more precise assessment of how many pips of risk you are taking in any given currency pair.

Pip value also helps you assess if that position risk you have or are planning to take is affordable and aligned with your risk appetite and account size.

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