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Forex broker comparison information
More and more investors are dealing with foreign currency trading. Among the countless other investment opportunities, forex trading offers a good opportunity to make profits within a short period of time by speculating about the future development of currency pairs, which would be difficult or impossible to achieve with conventional investment products. However, every trader should be aware of this Be that forex trading also entails considerable risks. It is therefore very important that all interested traders and those who want to become one inform themselves in advance about the currency market, currency trading and also about choosing the right forex broker. In the following we would like to take a closer look at this topic and give you some advice
- How does Forex trading work?
- What is a forex broker?
- Dealing Desk Broker
- ECN-STP broker
- Which broker for forex trading?
- Trading platforms & demo account
- Services of the broker
- Customer service & support
- Most important conditions
- Maximum leverage
- Minimum deposit
- Trade offer
- What should I look out for when comparing Forex brokers
- Is the forex broker reputable?
How do the foreign exchange market and currency trading work?
Before you deal with the choice of the provider and a forex broker comparison, you should first understand how foreign exchange markets and forex trading work. It is true that trading currencies seems very complicated at first glance, especially for beginners. In principle, however, the functionality of forex trading is quickly explained. A fundamental point is, for example, that in foreign exchange trading, one never trades a single currency, but always speculates on the value relationship between two currencies. This value relationship is constantly influenced by supply and demand, which causes fluctuations in exchange rates Speculate forex trading. In principle, forex trading is a global exchange
For example, if you want to speculate on the relationship between the euro and the US dollar, you have to trade the EUR / USD currency pair. But almost every other currency that is freely tradable on the markets can also be traded in this way with another currency during a forex pair. The value ratio of these two currencies to one another is ultimately expressed in the respective exchange rate. One of the basic advantages of Forex trading is the ability to bet on both rising and falling exchange rates for the corresponding currencies. For example, if you are of the opinion that the US dollar will continue its upward trend against the euro, speculate on a rising dollar rate by buying this currency and selling euros in return. If the expected development then actually occurs, you have made a profit during this forex trading. However, if there is a trend reversal and the euro is again quoted stronger against the dollar, you would suffer a loss in this example.
The following information is important in the context of Forex trading:
- Speculation is always based on currency pairs
- Due to the leverage, traders need little equity
- one can speculate on falling and rising prices
- Profits and losses can be very high in a short period of time
What is a forex broker
After you have informed yourself as extensively as possible about the foreign exchange markets and trading in foreign currencies, you cannot start trading straight away, but must first choose a forex broker who can handle your foreign exchange transactions for you. Since the forex trading is usually not offered by your house bank, you should carry out a detailed forex broker comparison before you open an account with a provider. These special brokers are the basis for private investors and traders to be able to trade foreign currencies at all.
Since there are now very many forex brokers on the market, it is recommended to carry out a forex broker comparison. For this purpose, it is advisable that you first find out about the fundamental differences between the Forex brokers that exist in practice. There are now mainly three different types of brokers.
Dealing desk brokers and non-dealing desk brokers
Forex brokers can be divided into two large groups, namely the so-called dealing desk brokers and the non-dealing desk brokers. The first-mentioned dealing desk brokers are also referred to as market makers and are particularly characterized by the fact that these brokers simultaneously represent the respective counterparty and thus trading partner of the trader in their function. As a result, the customer is in a certain sense always trading against the forex broker. Conversely, if the trader makes a profit, this means that the respective broker suffers a loss; if the trader suffers losses, the forex broker as counterparty makes a profit. In principle, this does not have to be a disadvantage for the trader, which, however, requires that the respective forex broker works honestly and in a fair manner.
ECN and STP brokers in comparison
In the area of so-called non-dealing desk brokers, a distinction is made in particular between two variants, namely between the ECN and STP brokers . A characteristic of a non-dealing desk broker is, in particular, that the respective exchange rates are not set by the broker himself but are obtained from the interbank market or from connected liquidity providers. The broker thus has a selection of courses and usually provides its customers with the currently lowest prices. Among other things, this means that in the course of ECN and STP trading it is often possible for traders to trade at very low or in some cases even completely without spreads.
The difference between ECN and STP brokers is basically that the profit of the STP broker is achieved in the form of spread premiums. With the ECN brokers, on the other hand, a fixed commission is usually charged in addition to the spread for trading as such. With the STP brokers, however, you should know that there are providers with fixed spreads on the one hand and Forex brokers with variable spreads on the other. If you know the differences in the business models of the respective broker types, it makes sense to find out in advance whether you would rather trade with a market maker or an ECN-STP broker. But whether it is a market maker or an ECN or STP broker is not the most important criterion when comparing the different forex brokers.
What should be considered when comparing forex brokers?
The selection of the forex broker to be used for trading is certainly of great importance. Because this choice can decide whether the trader is successful in trading forex or not. Therefore, some points should be considered, which of course also flow into the forex broker comparison in the sum. It is helpful if you divide the comparison into different categories, such as the following:
- Trading platform
- Services of the broker
- Customer service
- Trading conditions
- Extras and bonus
Is there a demo account and what trading platform does the broker offer?
The trading platform forms the basis for all foreign exchange trading and ultimately also represents the respective forex broker in comparison. It is very important that you as a trader get along well with all functions and the design of the respective trading platform later, because this is the tool with which you may later have to work on a daily basis. So, above all, you should test whether the platform is easy and understandable to use. But it is also important to look at the various functions that are offered by the respective platform. In order to be able to test different trading platforms from different forex brokers, you should take the chance to open a demo account.
Almost all forex brokers now offer this option. As a trader, you have the opportunity to deal intensively with the trading platform over a certain period of time without risk. You should also make sure that the trading platform is also available in a mobile version if possible. Only then, if you want to trade exclusively from your home PC, you can neglect this point when comparing Forex brokers.
Which Forex Broker Do I Use for Forex Trading?
A very important point when comparing Forex brokers are of course the services that the respective provider provides. It is not about the basic services, because these are available with every broker, such as the free provision of the trading platform. Rather, it is about additional services that are not yet offered by all providers. One example is the demo account, which ideally can be used without a time limit. Here you can test unlimited strategies or try out functions of the platform without risk. However, with most providers the demo account expires after a certain time and is then no longer available. The previously mentioned mobile trade is also one of the services which can be regarded as standard nowadays. In addition, beginners often enjoy an extensive learning and knowledge area, which for example consists of video tutorials and webinars. In addition, there are some other services that you should consider when comparing a forex broker.
Customer service: friendliness, professionalism, and easy accessibility
Customer service is also a point that you should definitely pay attention to when comparing forex brokers. Especially when you are trading foreign exchange for the first time, it is of course important that you always have a competent and easily accessible contact person available. Or even if there are problems, it is important that you have a contact person you can turn to. Here you should make sure that the broker offers support in German, because especially in the case of problems, you prefer to speak your native language falls back.
Therefore, there are four main criteria that you should pay attention to when it comes to customer support:
- Various contact channels can be used (email, live chat, telephone, Skype)
- easy accessibility of employees
- optimal: German-speaking customer support
- qualified answers and efficient problem solving
Trading conditions can decide on the choice of broker
In the course of a forex broker comparison, it is certainly easiest to compare the different trading conditions of the providers
The most important conditions when comparing forex brokers
- Minimum account deposit
- Deposit and withdrawal methods
- there are fees for withdrawals
- there are fees for the platform or real-time quotes
- maximum leverage
- where is the broker regulated
- which deposit insurance is offered
- Number of tradable currency pairs
- Margin amount
- smallest tradable unit
Maximum leverage is important for professionals
Professional traders in particular often first ask what the maximum leverage is when comparing brokers. Since the leverage determines how high possible percentage profits can be in relation to the capital employed, many traders favor very high leverage. The best offers in this area are currently at 400:1 or 500:1.
When it comes to the minimum deposit, it is less interesting for professional traders than for beginners. If you open a trading account with a forex broker for the first time, you usually don't want to have to deposit 1,000 euros or more. Therefore, beginners in this area prefer brokers who, for example, do not require any minimum deposit or where the deposit to be made is only at least 100 or 200 euros.
Smallest tradable unit
The smallest tradable unit describes the smallest position that can be traded in a certain market. Usually this is given in lots or contracts. For example, 1 lot means that every pip that the exchange rate of the currency pair changes means a profit / loss of 10 USD for the trader. Many brokers offer the trading of so-called microlots, i.e. 0.01 lot. A trade with 0.01 lot would be the profit / loss in this example is only 1/100 of 1 lot, so 0.10 USD per pip. Therefore, this point is less interesting for professional traders than for beginners who want to trade smaller positions at the beginning so as not to risk so much capital.
Spread as a cost factor
The spread is basically the only fee that is charged when trading forex, how crucial this criterion is depends mainly on your trading strategy. Traders who tend to hold their positions for a long time can get over slightly higher spreads, whereas for clients who process many trades on the same day, so-called day traders, this factor can mean the difference between profit or loss. When comparing, you should not only pay attention to the spread. As we have already learned, some forex brokers charge order fees for buying and selling foreign currency in addition to the spread, depending on the type of broker (market maker or ECN or STP broker). So it is sometimes a bit time-consuming to compare the individual spreads of the providers with one another.
Number of tradable currency pairs and margin
The number of tradable currency pairs still differs significantly from one broker to the other. The best providers in this area provide their customers with more than 150 currency pairs. However, studies have shown that more than 90 percent of all traders can trade at least 50 or 60 currency pairs, the so-called majors, i.e. the most widely traded currency pairs (EUR / USD, USD / JPY, GBP / USD, USD / CHF ) are of course offered by all forex brokers, but not all brokers offer exotic currency pairs such as EUR / TRY. Another trading condition, which is directly linked to the maximum leverage, is the margin. If this is multiplied by the leverage, the total is always 100.
What do I have to look out for when comparing Forex brokers?
Now that you know what to look for when comparing Forex brokers and when choosing the provider, the question may still arise how you can best approach the comparison in practice. In order to make it as easy as possible for you to compare the numerous brokers, we have listed all reputable providers in this area in our forex broker comparison and summarized all the important data on the respective broker for you.
Is the broker reputable?
As mentioned before, when comparing Forex brokers, you should by no means limit yourself to comparing the trading conditions, but also inform yourself about the services, customer service and trading platform. For this purpose, our visitors have the opportunity to leave their experiences with us in the form of reports. Traders can evaluate the performance of the individual providers and help other customers to get a picture of the strengths and weaknesses of the respective broker. Nothing is more informative than the experiences and reviews of other traders about a broker or service. Here you can see whether the forex broker really does what it promises. Because what use is a good broker comparison if the broker promises good services, but does not keep them in practice.
Unfortunately, there is no such thing as the overall best forex broker. When comparing, you should weigh the strengths and weaknesses of all providers against each other, select the broker that best suits your requirements and open a demo account. If everything runs smoothly in the demo and you are satisfied with the conditions and customer service, read the experiences of customers in our database with the respective broker and only then open a live account. If you follow all of these steps you should find a broker that is a good fit for you and your needs as a trader.
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Risk warning: Foreign Exchange and CFDs are complex and leveraged instruments and come with a high risk of losing money rapidly due to leverage. 74-89% of retail investor accounts lose money when trading Forex and CFDs. You should consider whether you understand how Forex and CFDs work and whether you can afford to take the high risk of losing your money.
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