As with evaluating any vendor, to find a reliable CFD & Forex Broker — whether you’re a beginner or a seasoned day trader - do your homework. Follow these five in-depth tips on how to find the best CFD & forex broker that meets your needs.
What is a CFD & Forex Broker?
A CFD & Forex Broker is the intermediary between traders and the over-the-counter markets, which provides a trading platform and necessary services to conduct trading.
An over-the-counter (OTC) market is a decentralized market in which market participants trade stocks, commodities, currencies, or other instruments directly between two parties and without a central exchange. Over-the-counter markets do not have physical locations; instead, trading is conducted electronically.
A Forex Broker offers you a way to get into the mix with the banking network and purchase a currency pair to hold in an easy, cost-effective manner. Before there were forex brokers, people wishing to trade in foreign currency needed to have a large amount of money and a special relationship with a bank to buy foreign currencies.
During the previous decade, the forex brokers expanded their product line offering stock trading, index trading, futures trading, and recently even cryptocurrency trading through CFDs (CFD meaning contract for difference).
CFDs are financial derivative products that allow traders to speculate on short-term price movements. There is no delivery of physical goods or securities with CFDs, you are just entering into an agreement that if the price goes in your favor, you make money, and if the price goes against you, you lose money.
This is accomplished through a contract between client and broker and does not utilize any stock, forex, commodity, crypto, or futures exchange.
The value of a CFD contract does not consider the asset's underlying value: only the price change between the trade entry and exit.
CFD & Forex Broker make their money by taking a slice of the pie when you make a trade. The change in the relationship between two currencies in a pair is measured in pips. When you make a trade the forex broker charges you a few pips before putting your trade on the market. The market might be trading at 1.2100 EUR/USD as a buying price, and when you enter your trade, the broker may put you in at 1.2101. If you immediately close your trade, the broker collects the profit between the "market price" and the price you paid. This is called spread in forex.
You might wonder why the CFD & forex brokers would pick such a small item to make money on. The way a CFD & forex broker makes money is that they allow you access to leverage. When you use leverage, you can control a larger amount on the market than what you have in your account. If you are trading 30:1, you can control $100.000 on the market with only $3.340 in your account. Not only does this increase your gains and losses, but it also makes each pip worth significantly more money, which makes the spread you pay worth more money.
Whether you win or lose while trading, the online broker will continue to make a profit on the difference between what you pay, and the actual "market price" that they are paying. The main job of a CFD & forex broker is to provide you with easy access to online trading and make some money in the process. Many of them will even help you learn a bit about trading.
For example, CAPEX.com provides free educational resources and trading tools like CAPEX Academy or a demo trading account. CAPEX Academy has lots of courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better-informed trader.
A demo account is a great place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for investors who are looking to make a transition to leveraged trading.
Take your time, open a demo account with each CFD & Forex Broker you're interested in, and try them out for a while. To speed up your search, we offer the following guidance.
5 Steps to Find the Best CFD & Forex Brokers
- Consider your trading style
- Pay attention to account features
- Try the trading platform and execution
- Look at trading education, research, and tools
- Do not forget the regulation and safety
Step 1 - Consider Your Trading Style
Your preferred trading style can help you determine the best CFD & forex broker for you. What distinguishes your various trading methods is the amount of time you hold a position, trading frequency, and how trade entries and exits are timed.
If you are a long-term trader who trades infrequently, you might select an online broker with a broad range of assets, tight swaps, and valuable information and educational offerings. You might not need to choose one with the tightest spreads since you won’t be trading that often.
On the other hand, highly active short-term traders are far more sensitive to dealing with spread widths. Also, if you plan to frequently use stop-loss orders, then order slippage can make a significant difference to your bottom line as an active trader. Choose an online CFD & forex broker with guaranteed order fills to help prevent that issue.
Another trading style factor could involve choosing a CFD & forex broker with negative balance protection. If you intend to place your account at risk, avoid a situation where a negative balance could put you into debt if a trading position goes sharply against you. The most common trading styles are listed below.
This short-term, active trading style involves rapidly entering and exiting the market to capture small profits. Scalpers need CFD & forex brokers that provide the tightest possible dealing spreads and fast execution, with less slippage.
This intraday style involves closing out all positions by the end of your trading day. Day traders benefit from a CFD & forex broker with tight dealing spreads. No overnight positions mean no swap worries.
This momentum-based trading style involves buying low and selling high or selling high and buying low whether you need to hold a position overnight or close it out intraday. Swing traders do not require the narrowest possible dealing spreads from their online broker but must be able to hold overnight positions.
Position Trading
This style takes advantage of extended directional movements in currency markets and can yield impressive returns. Trend followers like to use trailing stops to protect their accumulated profits. Dealing spreads are rarely an issue for this type of trader since they only go in and out of a market occasionally.
News Trading
This fundamentals-based trading strategy typically involves taking advantage of the volatility that news releases can create in the financial markets. Most news trading positions are taken intraday immediately before and after news release events. Since order slippage can be an issue at such times, a CFD & forex broker that guarantees order levels can be beneficial for news traders. You’ll benefit from a broker that provides you with top-quality real-time news inside the platform. Alternatively, use an economic calendar.
High-Frequency Trading
Automated trading systems are designed to allow traders to establish specific rules for trade entries and exits. These systems are made to automatically generate trade signals based on programs and historical data to be executed. You’ll need a CFD & forex broker that offers trading software that allows you to create, debug, test, optimize, and execute trading robots or expert advisors.
Carry Trading
This long-term trading style involves capturing the interest rate differences between two currencies by going long a high-yield currency and short a lower-yielding currency. They also like to receive some exchange rate gains as well. This trading style is not extremely sensitive to bid-offer spreads but does require attractive rollover or swap points.
This service enables traders in the financial markets to automatically copy positions opened and managed by a selected investor, usually in the context of a social trading network. Look for low management fees, low success fees, and other potential fees the brokerage and the money managers can charge.
Step 2: Pay Attention to Account Features
A quick overview of the services provided by any subset of the companies that offer online brokerage services will convince you that not all forex and CFD brokers are equivalent.
Accordingly, make sure any online broker you decide to partner with provides a safe place for your margin deposit and offers the specific services you require for your preferred trading style.
Each CFD & forex broker has different account offerings. Here are five areas to consider when comparing features among brokers: range of markets; leverage and margin; commissions and spread; initial deposit requirements; and ease of deposits and withdrawals.
Range of Markets
CFD & Forex brokers offer a similar menu of trading options: currency pairs, individual stocks, indices, exchange-traded funds, and commodities. Some will also offer access to digital currencies and bonds.
Foreign exchange, or forex, is the buying and selling of currencies with the aim of making a profit. It is the most-traded financial market in the world. The small movements involved in forex trading mean that many choose to trade using leverage.
A share is a unit of ownership for a particular company and is usually bought and sold on a stock exchange. You can use a CFD broker to open positions on the most popular shares, from blue chips like Apple and Tesla.
Cryptocurrencies are virtual currencies that can be traded in the same way as forex but are independent of banks and governments. Leveraged products provided by CFD brokers allow traders to gain exposure to major cryptocurrencies without tying up lots of capital or a wallet.
An index is a numerical representation of the performance of a group of assets from a particular exchange, area, region, or sector. As indices are not physical assets, they can only be traded via products that mirror their price movements – including CFD trading and ETFs.
While there is plenty of markets available for trading, only a few get most of the attention and, therefore, trade with the greatest liquidity. In addition to the major pairs, Gold, or Crude Oil, including major indices and bleu-chip stocks. A broker may offer a wide selection of markets, but what is most important is that they offer the ones that interest you as a trader.
CAPEX.com enables its clients to trade a wide range of financial assets ranging from currency pairs, stocks, indices, and commodities to ETFs, bonds, and cryptocurrencies.
Leverage and Margin
Depending on the CFD & forex broker, traders may have access to leverage made available in their margin account. For example, using 20:1 leverage, a trader with an account size of $1,000 can hold a position that is valued at $20,000. Leverage works in a trader's favor with winning positions since the potential for profits is enhanced. However, leverage can quickly destroy a trader's account since the potential for losses is magnified as well. Use leverage with caution.
Leverage is under regulatory scrutiny in the CFD industry. Most credible regulators limit retail clients' access to leverage. Retail customers will be compelled to prove that they are eligible to trade with a 1:500 leverage or settle for 1:30 or 1:20, which may reduce risks but also earnings.
When researching leveraged trading providers, you might come across higher leverage ratios – but using excessive leverage can have a negative impact on your positions.
As a highly regulated broker, CAPEX.com offers its clients leverage up to 1:30 in accordance with the latest ESMA guidelines.
Commissions and Spreads
A CFD & forex broker makes money through their stated commissions and spreads.
A broker that uses commissions may charge a percentage of a position's size (having said that, this is more common with instruments like crypto and share CFDs than Forex pairs).
Nonetheless, a lot of CFD & FX brokers advertise that they don't charge commissions, and instead make their money with spreads, which are the difference between the bid and ask price of a currency pair. The wider the spread, the higher the charge (and the lower your potential profits). For instance, the spread could be a fixed spread of three pips, or the spread could be variable depending on market volatility.
Pay careful attention to the spreads and commissions associated with your preferred markets.
For example, the spread could be a fixed spread of three pips (a pip is the minimum unit of price change in forex), or the spread could be variable depending on market volatility. The wider the spread, the more difficult it can be to make a profit. Popular trading pairs, such as the EUR/USD and GBP/USD, will have tighter spreads than more thinly traded pairs like USD/TRY.
When you trade with CAPEX.com you will discover that spreads are tight, deep liquidity and fast execution on all asset classes.
Initial Deposit
Most trading accounts can be funded with a very small initial deposit, even as low as $100. With leverage, of course, the buying power is far greater than the minimum deposit, which is one reason CFD trading is attractive to new traders and investors. What a beginner trader must consider is how much money you need to trade forex and other leveraged products. That comes down to position size, stop loss, and money management.
The 1-2% rule is one of the best methods for mitigating trade risk. If your account contains $1,000, then the most you'll want to risk on a trade is $10-20. If your account has $10,000, you shouldn't risk more than $100-200 per trade.
Determine Your Minimum Capital for Trading
It helps to see how different position sizes and risks per trade can influence your minimum amount for leveraged trading.
- If you trade EUR/USD on short-term, your stop-loss order will probably be tens of pips of your entry price in order to avoid the small intraday fluctuations. Since the minimum value of each pip is worth $0.10 for the smallest position size (1 mini lot), your risk would be a few dollars per trade.
- If your stop-loss were 50 pips away, your risk would be $5, which means your account should be $100-200 to practice proper risk and money management (1-2% rule).
- If your stop-loss were hundreds of pips then your account should be thousands of dollars to keep the same risk per trade. The same is valid for larger stop loss.
- If you want to start with less than $1.000 look for a broker that offers micro-accounts.
With CAPEX.com you can find CFD trading accounts starting from $100, $1.000, or $10.000.
Ease of Deposits and Withdrawals
Before you give a broker any money, review its funding and withdrawal procedures. Some require long waiting periods until you can trade when you fund through checks or wire transfers, while others will charge hefty fees when you withdraw funds or close the account.
Account closure can be stressful when a broker forces you to fill out long forms, take surveys, or speak with a representative trying to change your mind. It can also take up to a week or longer to get your money back from less reputable operations.
Each forex broker has specific account withdrawal and funding policies. Brokers may allow account holders to fund accounts online via credit card, ACH payment, PayPal, wire transfer, bank check, or business or personal check. Withdrawals can typically be made by check or wire transfer. The broker may charge a fee for either service.
With CAPEX.com you can choose among several types of deposit and withdrawal methods with convenient costs.
Step 3: Try the Trading Platform and Execution
Unlike buy-and-hold investors who do not need to get the best price every time out, active, or short-term traders live and die by their ability to get a low price. So that is why finding a CFD & forex broker with a top trading platform can be so important.
The best trading platforms offer traders a way to place orders, track a watchlist of stocks, commodities, cryptos, currencies, and funds, receive alerts for securities that may be interesting trades, offer tools to analyze complex options trades, and much more quickly and intuitively. A top trading platform may also provide streaming news and can even get you a better trade execution, helping you secure the most attractive price possible.
Forex and CFD traders open and close positions through the broker’s trading software, which should include a mix of stand-alone, web-based, and mobile platforms.
Web-based trading provides an alternative to stand-alone software but often has fewer features, requiring account holders to access other resources to complete their trading strategies. Mobile trading apps provide the greatest convenience but fewest bells and whistles in a slimmed-down design that usually allows one or two-click trading. It’s best to use the full-featured stand-alone software whenever possible, saving the mobile experience for those times you’re away from your trading desk.
Most online brokers offer demo forex & CFD accounts that let prospective clients look at the stand-alone, web interface and mobile platforms, allowing them to trade with play money. This software displays the same quotes, charts, and watchlists as the real system, so it’s an invaluable resource to examine the quality of the broker’s bid/ask pricing. Be suspicious if the broker doesn’t offer a demo account because it might be using an inferior or outdated platform.
Find out if a chosen https://capex.com/registration platform is comfortable enough to work with it daily. All features and functions must be easy and understandable for you.
Step 4: Look at trading education, research, and tools
Reputable CFD & forex brokers offer a variety of resources for clients to make smarter decisions and improve their trading skills. Look for an educational section on the website with diverse webinars and tutorials on the fundamentals of forex and stock markets, popular instruments, and market forces that generate buying or selling pressure. These materials should include detailed information on how central banks affect the markets when they raise or lower interest rates and how traders can prepare for those periodic events. An education-oriented broker will provide comprehensive trading courses covering the basics of trading, the most popular technical indicators and trading strategies, risk and money management, or trading psychology.
The educational section should also provide instruction on the broker’s trading platforms, currency pairs, and market order types. Look for videos, manuals, or other tutorials that show you how to build customized watchlists, set up technical charts, and display easy-to-read quote screens. These instructional materials should also explain how to access news and research directly from platforms, so you don’t have to surf the Net looking for information.
Extensive research and economic analysis tools should highlight trading instruments that might offer the best short-term opportunities. This section should offer free third-party commentary and insight from industry experts as well as real-time news and live webinars. Look for research that spans the globe rather than just local markets and provides a comprehensive daily economic calendar that lists all market-moving economic releases around the world.
Apart from the educational resources like CAPEX Academy, our trading platform comes with integrated third-party tools that bring together the knowledge, skill, and market analysis of successful and renowned financial market experts.
Here's a taste of what you'll be getting in the CAPEX WebTrader to help you make better-informed trading decisions:
Step 5: Do not forget the regulation and safety
One of the first things to check when selecting a forex broker is their reputation. In the European Union, a reputable forex broker may be authorized and regulated by the Cyprus Securities and Exchange Commission (CySEC) and provide cross-border services under its supervision. It may also be licensed by a local regulator bod like the Romanian Financial Supervisory Authority (ASF) or the Spanish National Securities Market Commission (CNMV). According to ESMA, Cyprus brokers have the highest level of outgoing cross-border activities in the European Union. UK brokers are regulated by the Financial Conduct Authority (FCA UK).
A flashy website does not guarantee that a broker is highly regulated. Any regulated broker should make it clear about their license on the website. If it does not, or you cannot find this information, just ask the broker’s support for a license. Due to potential concerns regarding the safety of deposits and the integrity of the broker, accounts should only be opened with brokers that are duly regulated.
Take your time when looking for a reliable forex broker to make sure your money and trades will be handled appropriately. Go to the regulator's website to verify the broker’s license and look for complaints or disciplinary actions that could affect your final decision.
The safety of your funds and private information is more important than any other consideration when you open a CFD trading account because brokers can get hacked or go bankrupt.
As a client, the last thing you’d want is your trading and investment funds to be at risk.
As a regulated and licensed CFD& Forex broker, one of the requirements is to have segregated financial accounts that separate the clients’ funds from your own business funds.
Regulated CFD & forex brokers will have to hold separate bookkeeping for the segregated funds as well as part of the regulatory requirements. It is also important to check if the broker is a member of the Investor Compensation Fund (ICF). The objective of this fund is to secure the financial claims of the covered clients in case the company is unable to pay, due to bankruptcy for example. The total amount of compensation that can be paid to the covered client is 20,000 euros.
The transparency of your broker is essential. This extends to making transparent trades as well as offering a comprehensive listing of their commissions and trading spreads. A regulated broker will ensure that their claims and offers are not misleading to prospective clients and traders.
Regulated CFD & forex brokers aspire to provide superior customer support for their customers. This includes key aspects of the CFD trading experience including:
- Setting up and funding your trading account
- Resolving technical trading issues, you might encounter on the platform
- Providing you with important trading information ranging from the spreads to trading platforms available
Online trading can be fast-paced, and the lack of reliable customer support can very well cost you valuable time and money.
Prospective clients should stick with the most reputable brokerage houses, preferably those with solid global regulation and reputation and a local presence and registration.
The Bottom Line: Personally Test out the Best CFD & Forex Broker
Your list of potential brokers should be smaller now. But with so much false information out there, don't decide yet. Instead, test out the CFD & forex broker you are most interested in.
First, open a demo account and take note of the trading conditions. Your orders should execute instantly. Spreads should be tight and the platform stable, not crashing all the time.
If the demo works well for several weeks, then open a live account, with a fraction of the capital you intend to deposit. For example, if you have $10,000 to deposit, start by only putting in $1,000.
Trade the live account with your partial deposit for at least two weeks. During this time, continue to test customer support, asking them questions and assessing how quickly they respond.
Initiate a withdrawal for some of the funds in your account. Depending on your withdrawal method, this may cost you several dollars, but it's worth it to know whether withdrawals can be done easily.
If everything seems good after all this, you've done your due diligence. Deposit the rest of your capital and begin trading as usual.