Trillions in currency are zipping around the world, 24 hours a day, five days a week, making the foreign exchange (also known as forex or fx) markets the world’s most active. Fortunes can be won and lost quickly, as brokers routinely let traders borrow heavily to finance their speculations.
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A picture of dozens of currencies
If you’re looking to get in on this action, you’ll need a broker who deals in currency, and many of the big names in stock trading simply don’t offer this feature. Because the markets are so different, you’ll also need to evaluate a forex broker on different criteria from what you would use to evaluate a stock broker.
Below are some top forex brokers, including a couple that allow customers to trade cryptocurrencies.
Here are the best online brokers for forex trading in 2023:
- TD Ameritrade
- Interactive Brokers
- Forex.com
- Ally Invest
- IG
Overview: Top online forex brokers in January 2023
TD Ameritrade
TD Ameritrade offers a range of tradable products, and currency really rounds out its portfolio. Currency traders are able to use the broker’s highly regarded “thinkorswim” trading platform, and can also trade on a couple of mobile apps.
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The broker uses spread pricing and offers 50:1 leverage, which is the legal maximum permitted in the U.S. It offers more than 70 currency pairs, providing plenty of choices. TD Ameritrade also allows clients to trade Bitcoin futures, though you’ll need to get approval to trade futures, and pricing uses the broker’s futures scheme.
(Charles Schwab has purchased TD Ameritrade, and will eventually integrate the two companies.)
Pricing: Spread
Maximum leverage: 50:1 on major currencies; 20:1 on minors
Currency options: More than 70 pairs
Interactive Brokers
Interactive Brokers is well known for its low costs and powerful trading platforms preferred by active and professional traders. Forex traders won’t be disappointed by the advanced trading tools available as well as real-time quotes from many of the world’s largest forex dealing banks. You can even trade stocks on international exchanges and attach a forex order to hedge the currency at the same time.
Interactive Brokers also began offering some cryptocurrency trading in 2021. You’ll be able to trade popular cryptocurrencies such as Bitcoin and Ethereum at attractive commissions.
Pricing: Commission: 0.08 – 0.20 basis points
Maximum leverage: Up to 50:1
Currency options: More than 100 pairs
Forex.com
Like its name suggests, Forex.com specializes in currency trading (though it trades in metals and futures, too) and it offers a plethora of attractive features. Clients can select the pricing structure that suits them best: spread or commission, or the broker’s STP Pro pricing, where prices come from global banks and others with no additional markup.
Forex.com also gives traders access to more than 80 currency pairs, and its success with clients has the broker declaring that it’s the No. 1 forex broker in the U.S., in terms of assets held with the broker.
Pricing: Spread and commission, depending on account type
Maximum leverage: Up to 50:1
Currency options: More than 80 pairs
Ally Invest
Ally Invest is better known as a low-cost stock broker (and for its especially good prices on options trades), but currency trading really adds some breadth to its offerings. Ally is a good choice for traders just starting out, and it offers more than 80 currency pairs and easy-to-use charting software, including a mobile app.
Ally also allows you to open a $50,000 practice account so that you can see how currency trading works, even if you don’t intend to actually trade. Given the difficulty of forex trading, that’s a great resource for beginners to try it out.
Pricing: Spread
Maximum leverage: Up to 50:1
Currency options: More than 50 pairs
IG
IG is a more specialized broker focused on forex, and it’s open to American investors. It’s a high-powered broker that nevertheless offers many features, such as a demo account, that may help novice traders. The broker offers a web platform, a mobile app and access to MetaTrader4 and ProRealTime platforms.
IG allows spreads as low as 0.8 pips (a pip is one ten-thousandth of a point), and says that its pricing is up to 20 percent lower on the euro-dollar pair than the top two U.S. brokers. The broker also provides an extensive range of charting capabilities across its platforms.
Pricing: Spread
Maximum leverage: Up to 50:1
Currency options: More than 80 pairs
What to consider when choosing a forex broker
While you may be familiar with many of the brand-name online stock brokers, only some of them deal in forex trading. Instead, a plethora of more specialized niche brokers populate the space, and they may cater to high-volume currency traders looking for every possible edge.
But regardless of which kind of broker you’re targeting, you’ll want to focus on at least a few features that are common to any forex broker:
- Pricing: Forex brokers have two ways to price their services: by baking the price into the buy-sell spread or on a commission basis. Spreads are often quoted in pips, or one ten-thousandth of a point.
- Leverage: How much leverage will the broker let you assume? In general, traders look for a higher degree of leverage to magnify the moves in the currency market. The level may differ depending on the liquidity of the currency.
- Currency pairs: A handful of major pairs dominate trading, but how many other pairs (minors, exotics) does the broker offer? The most popular currencies include the U.S. dollar, the euro, the Japanese yen, the U.K. pound and the Swiss franc.
- Spreads: How wide are the broker’s spreads for trades? The larger the spread, the less attractive the trade. Of course, brokers who charge a spread markup will tend to have wider spreads because that’s how they get paid.
Investors looking to buy cryptocurrency may be able to do so through some of the traditional stock brokers such as TD Ameritrade or Robinhood, though the trading works differently from regular forex trading as described above.
One downside for American traders is that many top forex brokers are based in the U.K. and simply won’t accept them as clients because of their citizenship. The brokers above are all fine for Americans, however.
How do I know if my forex broker is regulated?
Regulation of forex brokers is important for maintaining business standards and protecting clients. The Commodity Futures Trading Commission (CFTC) says that most scams involve unregistered people, products or companies. So if you’re engaging in forex trading, you’ll want to use a registered broker, and it’s actually easy to determine if you’re working with one.
The CFTC registers and regulates forex brokers. A broker must meet certain financial standards, its personnel must go through background checks, and the firm must adhere to certain conduct and disclosure requirements.
You can check whether a forex broker has been properly registered by going to the National Futures Association website (which is under the supervision of the CFTC) and using its search tool. You can check a broker’s registration, its disciplinary or regulatory history and financial information. Be skeptical of any entity that is not properly registered.
What’s the difference between a dealing desk and an agency broker?
When you trade forex, you need a broker to execute your trades, but the broker may not always be acting in your interest first. There are a couple different kinds of models – a dealing desk and an agency broker – and they have different incentives as they’re executing trades.
An agency broker is one who acts in the best interest of its clients, and whose job it is to find the best deal price. So the agency broker does not hold any inventory of the assets being traded, which could put the agent’s and client’s interests in conflict, and merely acts as an intermediary. The client pays the agent specifically for this service, which could save the client a lot of money. So agents are usually reserved for high-net-worth clients who move massive amounts of money.
In contrast, a dealing desk trades in securities and owns them at the same time. This structure means the dealing desk may not always be working in the client’s interest but rather in its own.
So a dealing desk can operate as both a principal and agent in a transaction, creating some strange conflicts:
- As a principal, the dealing desk trades for its own account, meaning that it may take a trade from a client in which it has a vested interest in the outcome. In other words, the dealing desk could profit at the client’s expense, perhaps unloading inventory to the client just before the market falls or buying it just before the market rises.
- As an agent, the dealing desk can execute trades for a client and will pass along the trade price.
Because of this structure, a client may never know where the dealing desk’s interests lie on any individual trade – a problematic setup if you’re the client.