If you are new to FX trading, you will want to choose a broker that offers flexible trade sizes and deposits, educational resources and time for you to learn about trading and the broker’s platform on a demo trading account. To find all those resources in one place, you will probably be drawn to established names such as IG Group, however, brokers such as Pepperstone and CMC Markets are also worth considering.
Compare Forex Trading Platforms For Beginners
Here are three forex brokers ranked by what we think provide trading platforms that are suitable for beginner forex traders:
- IG – a large publically listed forex CFD and spread betting broker with excellent educational tools, analysis, and a clear, simple to use platform
- CMC Markets – forex traders can use CMC’s client sentiment gauge to see what currency markets profitable traders are buying and selling
- Pepperstone – offer zero spreads which can help new traders keep costs down
Understand how forex trading works
Forex is short for foreign exchange and it is the world’s most active financial market. Forex trading takes place across the world 24 hours per day, 5 days per week. The market grew out of the expansion of international trade and the removal of fixed exchange rates and capital controls, which began in the 1970s.
Today, foreign exchange not only supports global commerce but it’s also an asset class in its own right and is traded accordingly.
Forex trading takes place through specialist forex trading brokers and is available globally. There are key regional hubs, such as Tokyo and Singapore in Asia, New York in the USA, Amsterdam in Europe and London in the UK. Trading moves from one region to another as the business day there comes to an end.
Forex brokers are available in each region that offer clients the ability to trade on the forex markets. The table above shows some of the best forex trading platforms in the UK for you to compare.
Forex prices reflect the differentials in the performance of individual economies. Better-performing economies tend to have stronger currencies. Poorer-performing economies tend to have weaker currencies.
Forex prices also reflect sentiment towards currencies alongside the supply and demand for them. Forex traders take a view on the performance of one currency against another based on changes in the economic data and sentiment around those currency pairs.
The price of forex trading is made up of a bid price and an offer price; the difference between those two prices is called the bid-offer spread. In the most highly liquid and highly-traded Forex pairs, like EURUSD and USDJPY, this bid-offer spread can be just a fraction of a cent.
Tight pricing means that traders can potentially profit from relatively small moves in the Forex rates. If you buy a currency pair, the bid price of the forex rate in that pair needs to move fractionally above the price to make a profit.
Conversely, when selling a currency pair, the offer price needs to move below the price you sold the pair at to be in profit on the trade. However, if the market moves in the wrong direction, trades will result in a loss.
FX is the most actively traded of the world’s financial markets, and according to data from the Bank for International Settlements (BIS) triennial survey, on average, more than US$6.59 trillion of foreign exchange was traded daily in 2019, up from an average of just over US$5.0 trillion in 2016.
Those new to FX trading will probably want to look for brokers who offer smaller minimum deposit requirements, mini and micro lot trading sizes, alongside good education, training resources and limited or fixed risk trading.
More experienced and more active traders will want to look at the spreads a broker charges and any associated commissions. Sometimes, bid-offer spreads are discounted, however, a commission per deal is charged by the broker instead.
All traders, whether large or small, should be sure that their funds are secure. If you trade with an FCA-regulated broker, then your funds will be held in a segregated client money account and they will be insured (up to £85,000) by the UK’s Financial Services Compensation Scheme (FSCS).
Forex traders should ensure a broker’s trading platform offers the markets you want to trade, at the times you want to trade them. FX markets are traded 24/5 across the globe, but the trading hours of other instruments can vary by provider.
Other things to consider when choosing a broker are features such as research, ideas and analysis. Does the forex broker offer webinars? What are their customer and technical support hours? Can they be contacted by phone or is it all online only?
In our review of the best forex trading platforms, we highlight the major advantages and disadvantages of each forex broker.
Choosing which is the right forex trading platform to start with
When choosing your first forex platform, decide if the forex broker’s platform or MT4 is appropriate. Spend some time in the demo environment on the platform, which will allow you to test the features and look and feel of the technology. If you don’t like the way that MT4 is set out and ordered, then it’s probably best to move on quickly as the platform doesn’t allow for customisation. IG offers several alternative trading platforms to MT4, including an online web trader mobile app and the more advanced proReal time platform. At Pepperstone, you will find cTrader as an MT4 alternative, a platform that is customisable and comes with several additional features. Once again, the best way to decide if it’s for you is to test-drive the platform in the demo environment.
Limiting risk when starting to trade forex
Preservation of capital is one of the keys to successful trading, and never more so than when you are new to forex trading. One of the main ways that traders can preserve their capital is through the use of stop losses. A stop loss is an instruction to close an open position if the trade loses a certain amount of money or reaches a specific price point.
If that happens then the stop loss is triggered automatically and the trade is closed at the next available price. In certain circumstances, that could mean that the trader experiences what’s called slippage, and they can find that their stop loss has been executed at a price that’s quite different from the trigger level.
To avoid that possibility, some brokers offer the option of guaranteed stop losses, which close a trade at the nominated stop loss level without slippage. However, there is normally a charge for trading with a guaranteed stop, and there are usually minimum distances that the stop will need to be placed away from the current price.
Start small with a forex broker that offer the lowest deposits
Some brokers will allow you to deposit as little as £50.00, however, a small deposit is not necessarily a good thing because you need to be able to trade in the market, and to do that, you will need to meet the minimum trade size and margin requirements. With a deposit of £50.00, you are likely to be able to make just one or two trades at best, and to some extent, you would be prioritizing incorrectly. It would be far better to have a bigger trading deposit that you manage carefully.
Depositing funds with a Forex Broker
Once your account is approved and opened, you will be able to make a deposit, and your broker should make you aware of the payment methods they accept. Bank transfers and debit card payments are pretty much accepted universally.
Acceptance of credit card and e-wallet payments will vary from broker to broker. You may be asked to register your bank details with the broker before you make a deposit.
Before you start trading, you are going to need a trading plan or strategy. If you have one, that’s great, but if you are new to trading, then the best advice would be to start with a demo account that simulates trading in the live markets but without you having to risk any real cash.
On a demo account, you can become familiar with how the broker’s trading system works, and how the markets move and prices change within them.
It will also be a good idea to take advantage of any educational resources and training that the broker offers, as well as reading about and researching the markets for yourself.
Putting on your first forex trade
Once you understand how the markets operate, you can start to think about the instruments that you want to trade. There are plenty to choose from; some of them may make more sense to you than others. For example, you may feel you have a handle on what moves or influences the prices of USD JPY and GBP USD, and in that case, it would make more sense to trade those than say USD CHF or AUD USD. Essentially, trade what you know and understand or what speaks to you.
As part of your time on the demo account, you should familiarise yourself with placing orders and opening and closing positions. When you open a position, you will need to choose your instrument, the trade size and trade direction.
So for example, if you want to get long or buy the Japanese yen and sell the US dollar, you will open a sell or short position in USD JPY, or dollar-yen as it’s known. As you are selling the dollar and buying the yen, you will be dealing on the bid side of the quote, and you are looking for the dollar-yen rate to fall so that you can close or buy back your position at a profit.
If that happens, you will close or trade out of the position by buying the dollar and selling the yen. You do that by closing your short position at the offered side of the quote.
Just remember that when you trade in FX, you are always taking a view on two currencies and you are going long of one and short of the other as a result.
We talked about you having a trading plan or strategy before you get started in FX trading and one of the key components of that plan will be money and risk management. You will need to decide how much of your stake you will be prepared to risk on a given trade and how many trades you will have open at any one time.
Risk and reward are opposite sides of the same coin, however, the trick is to limit your risk and preserve your trading capital to earn as many rewards as possible, rather than risking or losing it all on a single trade.
You will also need to factor your trading fees into your strategy. After all, it’s no good snatching at $10.00 trading profit if your cost for the trade is $12.00 because all you have done is make a $2.00 loss. Do that 20 times and you have lost $40.00, and if you are trading with a $1,000 stake, you will have lost 4% of your capital by doing that.
In terms of developing a trading strategy that will be built over time, but the most accessible way for new traders to develop trading is to use some simple technical analysis and momentum studies.
By drawing a chart with two moving averages, for example, a 5-period line and a 20-period line, when the faster-moving 5-period line crosses through the slower moving 20-period line then that can be considered to be a potential buy or sell signal.
The 5-period line shows the trade which way short-term price momentum is headed. Traders will usually use another indicator to confirm the signal, but this simple strategy is a good starting point for beginners.
As you become more experienced, you can build out this strategy and include more complex indicators such as stochastics and MACD. Or you may prefer to trade fundamentals and the economic calendar, and the degree of surprise or confirmation contained in major economic releases.
What to avoid when looking for a Forex Broker
The forex broker industry is huge, there seems to be new brokers popping up every day, all claiming to offer tighter pricing, faster execution and better client money protection.
But how can you choose a Forex broker when there are so many options?
Instead of telling you what to look for, here is a guide of three things to avoid when looking for a forex broker. If you are looking for a recommended Forex broker here are three things you don’t want:
MT4 only forex brokers
We’re not saying that these brokers are bad, it’s just that they are not as good as full service brokers. There are lots of decent MetaTrader 4 brokers out there, but a broker that just offers MT4 is probably just a brand white labelling some technology from another service provider. Again, there is nothing wrong with this if that brand provides significant added value. But it’s often more sensible to go with a broker that provides a range of forex trading platforms.
Forex brokers that offer welcome bonuses
Those days are long gone and the FCA has not yet banned, but has basically told brokers that it will ban welcome cash bonuses as an incentive for new clients to open an account. Mainly it’s because in order to claim a bonus the terms stated that clients must trade a certain amount and the FCA considers this to be unfair and encouraging clients to take unnecessary risk. So, the decent brokers have stopped straight away, whilst others are still offering bonuses to new account holders.
It’s worth mentioning that there are decent brokers out there that offer all or some of these things to avoid, but we’re just highlighting a few points that should cause you to conduct a little extra due diligence when opening a forex trading account.