One thing we learned in 2020 is that our jobs are never secure and having multiple streams of income is better than having one. So with this mindset, many people decided to take their financial freedom into their own hands and started trading while locked down at home during the coronavirus pandemic.
While scrolling through social media apps, you’ll likely come across an advert encouraging you to open an account and start trading. Many of those adverts will be for foreign exchange (forex) trading.
Forex trading can be intimidating, and for many people, it’s hard to know where to start. So in this guide, we will help you navigate this field and tell you about the best forex brokers for beginners in 2021.
Our List of the Best Forex Brokers for Beginners
When determining the list of forex brokers for beginners, we examined the regulations, withdrawal and deposit fees, trade commissions, spreads, and minimum deposits of the brokers. Based on this, we came up with the following list.
What Is a Forex Broker for Beginners?
A broker is a financial services company that provides a platform for buying and selling assets. A forex broker provides a platform for foreign exchange trading.
We have all been buyers and sellers in the forex market at some point. When we travel to a foreign country and convert our local dollars to the foreign country's currency, we buy foreign currency. The exchange we bought the currency from, be it a bank or at a counter in the airport, acted as a broker between us and the foreign exchange market.
An online forex broker lets you notionally buy foreign currency (or speculate on it) without taking possession of any physical currency at all.
How Does a Forex Broker for Beginners Work?
Forex brokers act as financial intermediaries between buyers and sellers. They allow you to buy one currency using another currency at the current “exchange rate”, and you do this because you believe that the currency you bought will outperform the currency you sold.
A forex broker lets you trade currency pairs such as the JPY/USD. In this pair, the base currency is JPY, and the quoted currency is USD. Here, you are notionally buying JPY with USD in the hope that you can subsequently sell at a profit if the Japanese yen becomes more valuable relative to the US dollar.
You should start by trading the popular currencies that tend to be more liquid (i.e., can be bought or sold more easily). These are usually the currencies of the world's largest economies, such as the US dollar (USD), British pound (GBP), or Japanese yen (JPY).
Key Features to Look For in a Forex Broker for Beginners
As a beginner forex trader, there are several features you should look for in a broker. Let’s look at some of them.
The most important feature for any trader is knowing whether your broker is regulated, and the regulatory bodies governing your broker. Brokers that are not regulated may have hidden fees and may not have proper compliance rules, putting you as a trader at greater risk.
It is crucial to choose a broker that provides trading videos and a simulator (demo) account for you to practice trading and to use their platform as a beginner. This allows you to develop a trading strategy that works for you without costing you any money.
Low Initial Deposit
Many beginners may not want to start with a large account. As such, it is essential to find a broker with a low initial deposit. Once you become more confident in your ability, you can fund your account with more cash.
Knowing that your broker is always there to answer any questions can be comforting to many beginner traders. Forex brokers should be available 24/5 to traders who may need help using their platform or clarifying trade disputes.
Pros & Cons of Using a Forex Broker for Beginners
How To Choose the Best Beginners Forex Broker for Me?
To find the best broker, you have to take the time to do your research.
A beginner's biggest mistake is choosing the wrong platform for their trading style, which can mean higher fees and lower profits. It can also mean having to deposit more money in your account than you might want to.
If you intend your trading style to be in and out of a trade within a few seconds to take advantage of bid and ask spreads — a strategy known as scalping — you need a broker with the fastest executions and lowest fees. However, if your objective is to buy the currency and use it to trade stocks or any other asset class in that currency — i.e. to actually use the currency rather than merely speculating on it — you would need a broker who trades other asset classes with fixed spreads.
How to Safely Use a Broker to Make Money Online Trading?“ The ultimate consequence of not doing your research before trading is that you significantly increase the chances of losing your money. This is not what you want. The most critical feature of a forex trading platform for beginners is education. Take some time to learn about the platform and how to use the features correctly. Most brokers allow the use of a simulator (demo) account. Take the time to practice trading in this account so you can develop a trading style that best suits you. Learn to use tools like limit orders and stop orders to reduce the risks of trading. ”
With six trillion dollars in average daily trading volumes, the forex market is the largest financial market in the world. Participants range from retail investors to large multinational banks and even governments. Understandably, a beginner might find this practice intimidating. However, with good education and risk management tools like limit orders and stop orders, it does not have to be as risky an investment. Even beginners can go on to make millions by trading forex.
Frequently Asked Questions
A currency pair is the value of one currency quoted in another currency. For example, EUR/USD means you are buying EUR with USD.
To open a forex brokerage account, you will need to go to the broker's website, where they should have a link to open an account. Most brokers require you to provide proof of identification and verify your address before funding your account.
The forex market is open 24 hours a day from Sunday evening until Friday night.
Forex brokers let traders use leverage. This means that for every $1 you have to trade, your broker allows you to place a trade worth up to $200. Beware that it can magnify your losses as well as your gains.
A pip is the smallest unit of change in the price of a currency pair.
Spread is the difference between the bid (price when selling) and ask (price when buying) of a currency pair.