The stock market is big, but the forex market is much bigger. In fact, with a daily trading volume of over $5 trillion USD, forex is the largest financial market in the world and that can mean a massive opportunity for traders – whether you’re in London, Birmingham, or Manchester.
Many of the leading forex brokers in the U.K. are based overseas. This isn’t a bad thing. It means that in addition to being regulated by the Financial Conduct Authority (FCA), overseas brokers may also be subject to local regulation, adding an extra layer of oversight.
Our favorite forex brokers
- Best overall: Forex.com
- Best for high leverage traders: Alpari
- Best for reliability: Oanda
- Best for conservative traders: HYCM
- Our favorite forex brokers
- What is forex trading?
- What is spread betting?
- Understanding the forex market
- Forex trading risks
- How we made our selections for best forex brokers
- Best overall: Forex.com
- Best for high leverage traders: Alpari
- Best for reliability: Oanda
- Best for conservative traders: HYCM
- Final thoughts
What is forex trading?
Forex is short for foreign exchange, specifically trading one currency for another. You’ll also see forex referred to by the abbreviation FX. As a global exchange, the main participants in forex trading are banks and corporations, but online trading has made forex trading available on a broad level, enabling retail investors to trade currencies with the same ease of trading stocks.
A forex pair is two currencies that are compared or exchanged in a trade, like a trade of Euros for U.S. dollars or British Pound Sterlings for Swiss Francs. The most common forex pair used in trades is the EUR/USD pair, found in over a quarter of all forex trades as traders swap Euros for U.S. Dollars or vice versa. The first currency listed in the pair is the base currency and the second is the quote.
Best Forex Pairs (FX) to Trade as a Beginner
What is spread betting?
Among the forex brokers, there is some overlap between forex trading and spread betting, two very different types of trades even though both can involve currency. Spread betting makes it easy to bet on a range of potential outcomes with a specific expiry date (contract end date). As an advantage to other types of trades, there is no capital gains tax. However, there is no asset of value held, either. Spread betters are simply speculating on market movements without taking a position in a currency.
Understanding the forex market
The value of one currency compared to the other within a pair is called the exchange rate. For example, £1 will currently purchase $1.32 USD. Actually, the exchange rate is 1.3177 and the distinction can be important, particularly with high volume trades. Quick facts:
- The exchange rate is carried out to four or five decimal points in forex trades.
- Quotes you find online might only use two decimal points for simplicity.
- The fourth decimal place is called a PIP, a Percentage In Point.
- The fifth decimal is called a fractional pip or “pipette.”
- The Japanese yen is the exception and is quoted to 2 decimal points; the third decimal point is the fractional pip.
Because currency trades 24 hours per day and exchange rates are driven by supply and demand, rates change throughout the day. Over time, these changes can be sizeable. On larger trades, even small movements in price can mean a dramatic gain or loss.
Top traded currencies
Most of the trades in forex revolve around these four currencies:
- USD (U.S. dollar)
- EUR (Euro)
- JPY (Japanese yen)
- GBP (British pound sterling)
Trades are executed in lots, which refers to the size of the order. A standard lot is 100,000 units of a currency, such as $100,000 USD.
- Standard lot = 100,000 units (1 lot)
- Mini lot = 10,000 units (.1 lot)
- Micro lot = 1,000 units (.01 lot)
- Nano lot = less than 1,000 units (varies depending on quantity.)
Some brokers offer trades in nano lots, which are less than 1,000 units but could be any number below 1,000. While a full lot may seem like a massive amount of money, through leverage, it isn’t uncommon for traders to control mini lots or even standard lots (100,000 units) of a currency.
Types of orders
Forex trading often uses the same types of orders most commonly used in stock trading. Unless performing complicated trades, these four trades represent the order types used in most forex trades. Other types of orders may not be supported by all brokers.
- Market order: fills your order at the best available price
- Limit order: fills your order only at a specific price and won’t execute if that price is not reached
- Stop order: sells your holdings at a specific price and won’t execute if that price is not reached
- Stop loss order: sells your order automatically at a specific price to avoid further losses
Forex trading risks
Like any type of trading, forex has risks, some of which are unique to forex. Many of these risks are beyond the control of traders, but by understanding where the risks are many times risks can be averted or abated.
Forex markets can move rapidly and changing rates can make a trade unprofitable quickly. This risk is amplified if using leverage but can be mitigated in part by using stop loss orders that allow traders to exit a position and limit losses when a predetermined rate is reached.
1:50 leverage means that you can trade up to 50 times your account value. A margin is a related term. If your broker allows 1:50 leverage, your account must have 2% of the trade you want to make.
Margin = 100/leverage, so 50 times leverage = 2% margin required.
Leverage provides the ability to multiply gains by the leverage amount — but losses work on the same formula, so a small move in currency values can trigger faster losses and possibly a margin call that forces you out of your position or requires an additional deposit. Some brokers offer leverage up up to 1:1000 or higher.
Volatility, sometimes also called variability, refers to the fluctuation in price quotes during a given time period. Traders who want to open or close a trade may find difficulty in executing the trade at the desired price and may also find part of their trade quantity at a higher or lower price (or unfilled) due to volatility.
Interest rates set by central banks, such as the prime rate in the U.S. have a direct effect on currency values, often causing price changes based on news that could signal a change in interest rates.
While the risk is lower with major currency pairs such as GBP/USD or crosses such as GBP/JPY that represent currencies from countries with stable government finances, a country that fails to make its interest payments on debt or fails to make principal payment can change the value of its currency through its failures, causing the currency to lose value rapidly.
In a forex trade there is a risk that the other party in the transaction, typically the broker, doesn’t meet their obligation. Forex traders in the UK are advised to choose a broker that is regulated by the Financial Conduct Authority (FCA). Some brokers are merely registered with the FCA, an important distinction. Still, FCA regulation isn’t a silver bullet that can protect traders against any event. FCA regulation focuses on trading integrity and assures traders that funds in their accounts with an FCA regulated broker are kept separate from the broker’s own funds and are not subject to loss if the broker becomes insolvent.
In some extreme cases, there may be very few other parties interested in buying or selling. This creates a problem if traders need to build or exit positions and if sufficient volume needs to be traded into a low liquidity market, a buyer or seller can change the price for that currency for later trades by changing supply and demand through their own buying or selling activity.
How we made our selections for best forex brokers
Unlike stock trading, forex trading isn’t usually burdened by commissions or similar fees. Instead, brokers are compensated by using a spread, a gap between the bid and ask prices, that allows them a profit on each trade. While not the only consideration, spreads matter because they affect the profitability of trades. Wider spreads can have the effect of higher trading costs. Rollover fees or swap rates, which represent the difference in interest rates between the two currencies in a pair held overnight aren’t considered as a cost because a rollover fee can be either a fee or a payment to the trader. They work both ways.
2. FCA regulation
While the trades themselves aren’t monitored, brokers that are FCA-regulated provide an extra margin of safety because their business practices are monitored. There are examples of forex brokers that have become insolvent due to rapid changes in currency prices and exposure through leverage granted to traders and margin calls that haven’t been covered. FCA regulation assures that funds for trading accounts are kept separate from the broker’s own funds.
3. Cash management
The ease of funding trading accounts and getting your money back out are important considerations. Forex trading benefits from the ability to manage balances nimbly and to fund your account in a number of ways. When it’s time to take profits out, that process should be equally simple.
Forex traders come in all forms, from beginner to expert, and everywhere in between. Trading tools that help traders to understand price movements or the mechanics of a trade are expected. Brokers or trading platforms should have charting, historical data, news, and other tools available for traders.
5. Customer support
When a problem or question arises for traders, it’s important that there’s a way — or several ways — that traders can get support. The forex trading market has evolved, making the platforms or brokers with better trading tools more appealing.
Best overall: Forex.com
Forex.com is regulated by several jurisdictions, including the U.K., U.S., and Japan, which ensures that the company’s business activities are well-monitored, a plus for traders of any level.
With more than just forex trades on tap, Forex.com also offers traders opportunities to trade key indexes or even cryptocurrencies. An expansive learning center, packed with educational information, coupled with three trading platforms ranging from advanced to mobile, make Forex.com a solid choice for traders of any level of expertise. Tight spreads help reduce trading costs while 24-hour live support ensures that questions or issues can be quickly resolved.
Best for high leverage traders: Alpari
With over a million customers, Alpari is one of the largest forex brokers in the world. Accounts can be funded by eight different methods, so getting started is easy. Mobile and web platforms (MetaTrader 4 & 5), provide traders with the ability to trade on the go.
Spreads are narrow, a plus for active traders and leverage is generous with up to 1:1000 times leverage available. With 75 trading instruments, including currency pairs, spot metals, and Contract for Difference (CFDs), Alpari offers a wide range of options for traders who want to trade currencies or trade in other markets. Small lot sizes help as well, with trades as small as 0.01 lots helping traders ease into or out of positions at their own pace.
Best for reliability: Oanda
Oanda is compliant with six regulatory agencies around the world, ensuring several layers of oversight. A demo account helps traders learn the ropes or practice strategies, while extensive research resources and educational tools are always a click away.
Competitive spreads help traders to keep costs in check — but other account maintenance fees may apply. Oanda’s proprietary v20 trading engine is designed for transparency, free of the algorithms that can alter trades with some other brokers. Fully-automated trades execute in just one millisecond.
Best for conservative traders: HYCM
HYCM (Henyep Group) is one of the world’s leading forex brokers. With over 40 years of experience, this broker has forex down to a science, boasting over 25,000 orders processed every day and 20 years of U.K. oversight.
Leverage is limited to 1:200 with HYCM, which makes the broker a good choice for more conservative traders while still providing plenty of opportunity for leveraged gains on trades. Apps for Android and iOS put the power of MetaTrader 4 in the palm of your hand. Fixed, variable or raw spreads are available to match the trading style of any trader. Raw spreads are subject to a commission fee. Trade 100+ instruments in six asset classes including forex, commodities, indices, or key stocks easily with 24-hour support and an extensive education portal at your fingertips.
Massive swings aren’t unusual in forex trading. Fortunately, many platforms offer demo accounts that allow traders to learn at their own pace or to test trading strategies without risk of using their own capital.
Whether you’re new to trading or a seasoned pro, whether you’re a high-leverage risk taker or a more conservative trader, there’s a forex broker that’s the best fit — and in many cases, the broker you choose will continue to meet your needs as your account grows.
ESMA & FCA Risk Warning – “CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Capital at risk”