Best Forex Brokers

We surveyed the fifteen major online stock brokerages in our study, and found that more than 70% do not offer foreign currency trading or forex trading as part of their services. Conventional online stock brokerages prefer to focus on familiar securities like stocks and ETFs, and may have limited expertise or capability to trade foreign currencies. Some, like e*Trade and optionsXpress by Charles Schwab, used to offer forex trading but have stopped accepting new forex trading accounts.

Best Online Brokerages for Forex

If you are committed to investing in forex trading, make sure you understand the products and only invest what you can afford to lose. For those who are interested in the option of foreign exchange trading through the major online stock brokers, we'll be highlighting four and discussing their forex trade services. We recommend investors seeking to trade large quantities of foreign currencies use brokers that specialize in forex trading instead of conventional online brokerages. Even when purchased through the most reputable broker, forex trading can be extremely risky. 

TradeKing Forex

We like TradingKing's Forex offerings for its low general fees and opening minimums - in fact, it ranks as one of our favorite online brokers for beginners. While trading in common securities like stocks and ETFs don't require an opening minimum, all new accounts for foreign currencies at TradeKing must meet a minimum balance requirement, which is $2,500 for “standard accounts” and $500 for “mini accounts”. It offers up to 50:1 leverage, which means that if you have $100, you could potentially enter into a trade for up to $5,000. TradeKing Forex publishes its currency spreads, and offers 37 currency pairs for trade. Additionally, TradeKing Forex offers a $50,000 practice account. For its FX offering, TradeKing actually acts as an introducing broker to GAIN Capital Group which serves as the clearing agent and counterparty to trades. GAIN Capital is a registered Futures Commission Merchant (FCM) and a member of the National Futures Association. 

TD Ameritrade 

TD Ameritrade offers more than 70 currency pairs for trade. Unlike TradeKing Forex, TD does not publish its spreads and offers up to 50:1 leverage. TD Ameritrade also offers a way to practice trading through its paperMoney trading software application. Furthermore, forex accounts are not available to residents of Ohio or Arizona.

TD Ameritrade’s forex trading services is provided by TD Ameritrade Futures & Forex LLC.

Tradestation Forex

TradeStation offers more than 50 currency pairs for trade. Tradestation publishes its spreads and offers fractional pips (pips are the smallest price change that a given exchange rate can make - for most pairs this is the equivalent of 1/100 of one percent, or one basis point). Unlike the others we've highlighted, Tradestation does not offer practice accounts for investors looking to dip their feet into foreign currency trades. 

Tradestation Forex products and services are offered by the TradeStation Forex divisions of IBFX, Inc. 

Fidelity 

Fidelity offers very limited currency trading compared to the other online brokers in our list, with only 13 currencies available for exchange. Currency exchanges are completed on behalf of Fidelity by its affiliate Fidelity FOREX, Inc. Fidelity serves as agent and Fidelity FOREX as principal to the foreign exchange transaction. 

How to Choose a Forex broker

When choosing a forex broker, look for the following minimal trading costs, registration with regulators and affiliation with trustworthy institutions and a trading platform or system you’re comfortable with.  

Low Trading Costs

As in any investment endeavour, minimizing investment costs is one of the most important things to focus on when choosing a forex broker. Forex brokers don't charge a commission, but make money with the spread. The spread is the difference between the price at which a currency can be bought and the price at which it can be sold at a point in time. Usually, higher-volume forex players are quoted tighter spreads (i.e. smaller difference between bid and asks prices). 

Forex brokers either:

  • charge a fix spread
  • charge a variable spread
  • take a percentage of the spread

You should take into account bonuses or incentives offered by brokers to minimize your upfront trading costs. However, as with all investment accounts, read all the fine print carefully; incentives offered at account opening may have conditions attached. For instance, if a trader deposits $10,000 and gets a $2,000 bonus, the bonus may only be withdrawn after a set period of time, ranging from 3 months to a whole year.

Regulator-Registered Broker Status 

Under the Commodity Exchange Act, only certain regulated entities may be counterparties to over-the-counter trades with retail customers; these are National Futures Association (NFA) registered futures commission merchants (FCMs) and Retail Foreign Exchange Dealers (RFEDs). The National Futures Association is a congressionally authorized self-regulatory organization of the US futures industry.

You can obtain information about registered forex brokers through the (NFA Background Affiliation Status Information Center (BASIC), available on the website.

Appropriate Software or Trading Platform

Like online stock brokerages, forex brokers offer many different trading platforms and various tools to help traders make investment decisions. Before committing to a broker, test different trading platforms by requesting for free trials. If you are a beginner, open a demo or practice account to familiarize yourself with the market before using your investment funds. Most reputable brokers offer 'demo' or practice accounts. 

What is Forex Trading?

When you engage in foreign currency trading, you are buying and selling money. You buy a currency in the hope that the value will increase. When you sell a currency, you are betting that its value will decrease. Currencies are traded in pairs, like the US dollar and the Euro (USD/EUR) or the US dollar and Japanese yen (USD/JPY); the value of a currency is determined by its comparison to another currency. 

Currencies have two prices - the bid price (the amount a broker/the market will buy the currency) and the ask price (the amount a broker/the market will sell the currency). The bid price is always lower than the ask price. The difference between the bid and ask prices is known as the “bid-ask spread”. The wider the bid-ask spread, the more it costs to buy and sell a given currency, apart from any other commissions or transaction charges.

For retail investors, foreign currencies are traded over-the-counter (OTC). In the OTC market, also called off-exchange market, an individual investor trades directly with a counterparty, such as a forex broker or dealer; there is no exchange or central clearinghouse. Due to the OTC nature of the foreign exchange market, the investor relies entirely on the counterparty to receive funds or to be able to trade out of a position. This also increases the potential risk for fraud, which is why it is important to thoroughly vet your broker of choice. 

Unlike the stock market, forex investors have access to large amounts of leverage, which allows substantial positions to be taken without making a large initial investment. While leverage can amplify your gains, keep in mind that leverage can also magnify your losses; you could lose all of your initial investment and may be liable for additional losses, depending on your agreement with your broker. 

Comments and Questions