Best Forex Brokers For Beginners

Best Forex Brokers For Beginners

Before trading, it is important for the prospective Forex trader to learn about this market. This could be from a course, of which there are many or by reading books about it. Hopefully this educational approach will emphasize that the Forex market has complexity, difficulty and risk. That said many trade it, from hedge funds to retail clients. Forex can also teach lessons that can be applied to any trading market, as while it may evidence different kinds of behavior, similar patterns and reactions can be seen across markets. To trade it a broker is required.

Forex brokers can roughly be divided into those which provide ECN access and those which do not. ECN access would tend to be a more advanced way of approaching this market. The idea is to use the broker to send orders to the Interbank market and find very low spreads. These can be as low as 0 for some of the more liquid pairs (Forex is a market relatively suited to this kind of trading as it can evidence high liquidity and hence competitive prices for some pairs). In return for this the broker typically charges a commission relative to the lot size of the order. To access this market, the broker may provide MT4, MT5, cTrader or JForex or another platform (though these four tend to be the main platforms on offer). Some brokers can provide very fast order execution, by providing co-location of their servers with trading venues in London or New York.

One advantage of platforms such as MT4 and cTrader, is that they allow automated trading, but this is an advanced strategy which may not be suitable for a beginner to Forex trading, unless they are already familiar with automated trading from other markets. For a beginner it may be helpful to use a platform which is very user friendly and some brokers make a point of providing such platform, with their own web traders or platforms such as ParagonEx.

On the other hand are brokers which provide spreads with mark ups and no commission charge. These days very competitive spreads can be found which are provided by dealing desk brokers. For example spreads for the liquid EUR/USD pair less than 1. These will tend to be higher than the lowest ECN spread for this pair, as these spreads have been marked up by the broker, but then again there is no commission charge, so ECN spreads will not necessarily be lower. For traders in the UK, some of the most competitive spreads can be found at spread betting brokers. CFD brokers can also provide competitive Forex spreads.

All platforms provide charting. Some charting will have more tools such as technical indicators. Technical analysis is used extensively in the Forex market. But because Forex pairs move in complex ways, tracing out patterns which can be seen to be composed of changes in direction, then technical analysis cannot be relied upon to predict a future move. Fundamental analysis is also used in Forex, but again there are so many factors influencing the way a Forex pair moves that it cannot be relied upon either. An example of this is trading reactions to news events, called news trading. Pairs can be seen reacting in unexpected ways. Again while there may be a logic to the outcome after the event, before the event, this logic can be obscured or impossible to know. Brokers in general support news trading, but one argument for using an ECN broker is that they usually have no dealing desk intervention, that is they will not reject orders. Dealing desk brokers may, or may not be enthusiastic about strategies such as trading into the news.

Another approach is to use social or crowd trading. For a beginner this may help provide some relief, as it will allow them to see what other traders are doing and thinking about particular Forex pairs. However, past performance is not indicative of future results, thus because a trader has done well, does not imply they will do well. Why this is so may relate to the complexity of this or any trading market.

ECN spreads will be variable, that is spreads may be higher at a given time than the possible low. Marked-up spreads may also be variable, that is they can also be higher than the low. It is possible to find brokers which offer fixed spreads. Typically fixed spreads can widen in certain market conditions, which includes volatile times such as news events and out of regular trading hours. Again, spread betting brokers in the UK can offer competitive low fixed spread betting spreads for Forex pairs.

In summary Forex is a huge liquid market which many participants. Which broker to use may depend on the level of experience of the trader. ECN trading may be attractive to those who are familiar with trading and the platforms used. For beginners, then a broker with an approachable intuitive platform may make sense, with the caveat that some styles of trading may or may not be less suited to these kinds of brokers. However a beginner may not want to try such styles, until they have more experience.

Search this site