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What Is a Forex Broker?
A forex broker is a financial services company that provides traders access to a platform for buying and selling foreign currencies.
Forex is short for foreign exchange. Transactions in the forex market are always between a pair of two different currencies.
And also, a forex broker may known be as a retail forex broker or a currency trading broker.
Understanding the Forex Broker
- The foreign exchange market is, by necessity, a global and 24-hour market.
- The clients of a forex broker include retail currency traders who use these platforms for speculation on the direction of currencies.
- Their clients also include large financial services firms that trade on behalf of investment banks and other customers.
- And also, any individual forex broker firm will handle only a tiny portion of the overall foreign exchange market volume.
The Role of a Forex Broker
- Most foreign exchange transactions are between pairs of the ten nations’ currencies that make up the G10.
- The nations and their currencies include the U.S. dollar (USD), the Euro (EUR), the pound sterling (GBP), the Japanese yen (JPY), the Australian dollar (AUD), the New Zealand dollar (NZD), the Canadian dollar (CAD), and the Swiss franc (CHF).
- And also, most brokers allow customers to trade in other currencies, including those of emerging markets.
- Using a forex broker, a trader opens a trade by buying a currency pair and closes the business by selling the same team.
- For example, a trader who wants to exchange euros for U.S. dollars buys the EUR/USD pair. This amounts to buying euros using U.S. dollars.
- And also, to close the trade, the trader sells the pair, equivalent to buying U.S. dollars with euros.
- If the exchange rate is higher when the trader closes the trade, the trader makes a profit. If not, the trader takes a loss.
How Forex Broker Make Money?
- Forex brokers have compensated two ways. And also, the first is through the bid-ask spread of a currency pair.
- For example, when the Euro-U.S. Dollar pair is priced as 1.20010 bid and 1.20022 ask, the spread between these two prices is .00012, known as 1.2 pips.
- When a retail client opens a position at the asking price and later closes it at the bid price, the forex broker will collect that spread amount.
- Secondly, some brokers charge additional fees. Some charge a fee per transaction or a monthly fee to access a particular software interface or prices to access unique trading products such as exotic options.
- The forex industry is regulated by the Commodity Futures Trading Commission and the National Futures Association.
- Competition among forex brokers is currently intense, and most firms find they must eliminate as many fees as possible to attract retail customers. And also, many now offer free or minimal trading fees beyond the spread.
- Some forex brokers also make money through their trading operations. This can be problematic if their trading creates a conflict of interest with their customers. And also, regulation has curtailed this practice.
Regulation of Forex Broker
The industry is regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).
Best Forex Broker for 2021
- IG – Best overall, most trusted
- Saxo Bank – Best for research
- CMC Markets – Best web platform, most currency pairs
- Interactive Brokers – Great for professionals and institutions
- And also, TD Ameritrade FX – Excellent trading platform, US only
- City Index – Great all-round offering
- XTB – Best customer service, a marvellous platform
- FOREX.com – Great all-round offering
- And also, eToro – Best copy trading platform
1. IG Logo Best Overall
- Regulated and trusted across the globe, IG offers traders the ultimate package of excellent trading and research tools, industry-leading education, competitive pricing, and an extensive list of tradeable products.
- This fantastic all-round experience makes IG the best overall broker in 2021.
2. Saxo Bank Logo Best for Research
- For traders that can afford the USD 10,000 minimum deposit (GBP 500 for the UK), Saxo Bank offers competitive pricing, excellent trading platforms, brilliant research, reliable customer service, and over 40,000 instruments to trade.
3. CMC Markets Logo Best Web Trading Platform, Most Currency Pairs
- CMC Markets is a globally trusted broker that delivers a terrific offering for traders thanks to excellent pricing, nearly 10,000 tradeable instruments.
- And the Next Generation trading platform, which comes packed with quality research, innovative trading tools, and powerful charting.
4. Interactive Brokers Logo Great for Professionals and Institutions
- Professional forex and CFD traders seeking a global multi-asset broker will find Interactive Brokers offers a sophisticated, institutional-grade trading platform and competitive fees.
5. TD Ameritrade Logo Excellent Trading Platform, the US Only
- With nearly 80 currency pairs to trade alongside a plethora of trading tools and research. And also, TD Ameritrade’s thinkorswim platform provides US-based forex traders with a winning experience.
6. City Index Logo Great all-Round Offering
- Backed by GAIN Capital, City Index is a trusted brand that traders choose for its advanced trading platforms, excellent mobile app, diverse market research, education, and extensive market range.
7. XTB Logo Best Customer Service, Great Platform
- As a trusted multi-asset broker, XTB offers traders outstanding customer service and an excellent trading experience overall, thanks to the xStation five trading platform.
8. Forex.com Logo Great all-Round Offering
- While not a discount broker, FOREX.com is a trusted brand that delivers an excellent trading experience for forex and CFDs traders worldwide.
9. eToro Logo Best Copy Trading Platform
- eToro is a winner for its easy-to-use copy-trading platform, where traders can copy investors’ trades across over 2300 instruments, including exchange-traded securities, forex, CFDs, and popular cryptocurrencies.
Forex, or foreign exchange, trading is primarily between pairs of currencies of the nations that are represented in the G10.
The clients of forex traders are currency speculators or investors for large institutional clients. And also, interested investors have some choices among forex traders online.