Regulation of Brokers

Just like the other financial sectors, CFD brokers also have certain regulations which they need to abide by. However, due to the decentralization of the broker market, there are certain regulatory bodies which are responsible for controlling the regulations. That is one of the main reasons why brokers don’t have similar regulations in different countries. 

Here are some important regulations that all regulated brokers need to abide by when it comes to offering CFD, Forex, Stocks or any financial instruments/services to potential users/traders. 
 

2018 ESMA Regulation on CFD trading

Limiting the Leverage is one of the measures that are used by brokers who are licensed under a particular regulator. 

Leverage in forex trading is simply trading with borrowed money. The borrowed funds are given to traders by their brokerage firms. This trading feature gives investors the possibility of enlarging their trade size and taking advantage of trading opportunities that may come their way. 

Leveraging trading accounts are used by forex traders to make a reasonable amount of profit from the fluctuations in the exchange rate between two currencies or securities. With a margin trading account, forex traders can obtain leverage from brokers. Most leverages made available to forex traders by brokers are in the form of different ratios like 1:50, 1:100, 1:200 leverage, 1:500 and in recent times the implementation of 1:30 cap leverage in forex trading. 

On 1st August 2018, the Financial Conduct Authority, guided by ESMA’s (European Securities and Markets Authority) product intervention measures, introduced a raft of changes to the CFD and spread-betting industry. These changes are being implemented by European regulators and affect ALL EU (European)-regulated FX, CFD and spread-betting providers, and will significantly impact the way you can trade moving forward. 

However, if you have professional experience trading the markets with a reputable trading history of making profits from the market all the regulated brokers listed above can offer high trading leverage of 500:1 to even 1000:1. Not everyone can elect to become a professional client. Only those clients with sufficient trading experience and understanding of the product can do so, both of which are validated by a quantitative and qualitative test by the broker. Find out more here.

For beginner Non-European residents, FXTM is the best online broker we recommend if you are looking for high leverage of around 1:1000. 

For European residents, BlackBull Markets broker is the best trading platform and their highest leverage offering is at around 500:1 on Forex Majors. (learn more about Blackbull Markets)

Below is a table showing how leverage has changed for brokers over. XTB has been rated and reviewed by us and is one of the leading brokerage firms in the market.

Traders' Capital in Segregated Accounts 

For the protection of the funds of the clients, there are certain regulators which require certain segregated accounts from the brokers to cover up the client funds and operational funds. The regulators which are responsible for such regulations are CFTC in the US, JFSA in Japan, ASX in Australia and FCA (Financial Conduct Authority) in the United Kingdom. 

According to the FCA and mentioned in their journal handbook, “A firm, on receiving any client money, must promptly place this money into one or more accounts opened with any of the following:

• a central bank;
• a CRD credit institution;
• a bank authorised in a third country;
• a qualifying money market fund

FCA requirements are longlisted for Financial Investment Brokers so they can offer the best services to their clients. One of the most important requirements that Forex brokers have to be compliant with is keeping clients' funds in separate accounts from their company’s accounts. To ensure that the client’s positions are maintained in the United Kingdom market, all FCA brokers are required to maintain a minimum of one million pounds as operating capital. This is not a fixed number and as the number of traders along with trading capital increases, this also goes up. Long-established forex FCA-regulated brokers such as City Index & XM Group all have over 100,000 active traders.

Is a Trader's Capital/Money Safe? What Happens if the Broker goes Bust? Investor Compensation Funds

Certain regulators want the Forex brokers to provide a particular amount into the investor compensation fund. The fund is set up to make sure that the client’s interest is secured in case the broker cannot fulfil the contracts. IPF in Japan, FCA in the US, and MFIID in EU countries are the regulatory bodies which govern such regulations. 

There are some other regulatory bodies which also govern the regulations in different countries Forex broker needs to abide by these regulations for eventful results when it comes to Forex trading. 

For example, to get FCA approval, all Forex, Stock or Commodities brokers must get their client protection under the Financial Services Compensation Scheme (FSCS). FSCS guarantees up to fifty thousand pounds in compensation to the trader for broker-related problems. The way it works is that traders can get a hundred per cent of their money in the capital up to thirty thousand pounds (£30,000) of deposit and a maximum of ninety per cent for the remaining amount up to a maximum of fifty thousand pounds (£50,000) of deposit, in case of broker liquidation.

Trading Fees, Costs & Spreads

One of the main costs brokers earn from its client is what we call the ‘The Spread’. Therefore, amongst the pantheon of comparison features, we believe it sits near the top most searched when looking for an online broker. 

‘Spread’ is the pips between the BID price and the ASK price quote (also called buy/sell) in a currency pair like the EUR/USD.

It is necessary to understand that the asking price needs to be higher than the bid price all the time, and that difference is banked by the broker, obviously as a profit. That is the main reason why the spread has such a significant impact on your work as a Forex trader. As a trader, you want to bank as much profit as possible and depending on what strategy or style you trade what spread you have to pay out to the broker is very important.

If you’re just starting on your trading journey, then it might not be too important as determining your style of trading is incumbent on the spread data you are looking e.g. a trader after countless trials and error had determined that intraday trading is the best fit for him. This means that all his trading positions will be executed and closed within the trading day i.e. he will not commit to overnight positions no matter if he has 10 or even 20 trades that particular. According to data accumulated by XM Group Broker, a Day Trader typically makes anywhere between 5- 10 trades which means if you are trading 20 days in a month that amounts to 100-200 trades per month. Day Traders and Scalp Traders require rapid execution and low spread trading accounts whereas swing and positional traders can go with brokers offering low overnight interest rates or called ‘Rollover’ rates. 

If you require greater in-depth detail on which broker to go with based on your trading style, then read the below section on Trading Style vs Broker. The below table is a simple guide comparing spreads for a selected sample of trading instruments for the top three featured brokers for beginner traders who have just started.   

Trading Instruments	XTB UK	AvaTrade	XM Broker
Fixed Spreads
Variable Spreads
EUR/USD (pips)	2	1.5	1.6
GBP/USD (pips)	4	2	2.3
USD/JPY (pips)	4	1.6	1.6

Just like the banks, the element of interest has its presence in forex trading. Interest is paid and also earned based on trading instruments and currencies that are traded. It is important to understand that when the trader places a trade, there is one currency which is sold and another one purchased.  

When trading Forex or any other CFD-related products, the interest which is paid or owed is often calculated based on the positions which are held overnight. In case any trade is entered during the day and is exited before the day is over, there are no interests incurred or earned too. This is why day traders and those traders who are geared to scalp the markets do not have to account for overnight rate charges by brokers. Only those traders who swing trade/positional traders i.e. hold trading positions from more than a day to even several months would be subject to what is known as the Rollover or overnight trade. The net interest which is paid or owned is known as ‘Carry’. 

Swap-Free or Interest-Free accounts (Islamic Trading Accounts)

Due to religious laws of various faiths around the world, many individuals cannot trade Forex or any CFD instruments for that matter. The Islamic and Judaism faith prohibits the partaking and earning of interest from loaning, trading and any financial activities that are not permissible or prohibited. Please take a look at our guide on the best Islamic trading accounts. 

XTB & Pepperstone have made it to the top with brokers with the best Islamic trading platform.

What Trading Platform Suits Me?

Although there are many different options for software when it comes to Forex trading, the main player in the game would have to be MetaQuotes Corp. which is behind the production of the MetaTrader 4 or the MT4 software. It is one of the most popular options for software that is used by Forex traders. However, there are some other options which have evolved and taken the top spots in Forex trading. Here we are going to have a detailed discussion of the different software options. 

MetaTrader 4

MetaTrader 4 is the Forex platform which has been specifically designed to make the process of FX trading relatively easier. Many different features are provided to the people such as 1-click trading, over 50 indicators, multi-charging, limit orders, pending orders and so much more. One of the most interesting benefits of MetaTrader 4 is the stability that it provides. Traders can easily rely on the platform to work with different mobile applications. While web trading is something which is practised, mobile platforms are the ones which are taking the trading world by storm. Not only will you have a mobile method of trading but it is comparatively easier and much more effective as well. It operated well on Android, iOS, and Windows devices as well.

So, there is no doubt about the fact that this software is pretty robust and powerful. While most brokers have complained that this platform is quite slower than the others available on the web, there is no doubt that the long list of advantages makes up for the little shortcomings of the software.

Compared to the MetaTrader 4, the MetaTrader 5 is a newer and more advanced form of software which is used by traders. One of the main differences between these two software options is that the MetaTrader 5 software is much faster than the former option and there are some more indicators on the software as well along with several additional features. So, the MetaTrader 5 will be able to supper more orders. Although, there is not much of a difference, having a faster software option might just be the right solution for them for all types of traders.

Many brokers have their personalised platforms in the form of web trader platforms and cTrader platforms. The cTrader platforms offered by Pepperstone and IC Markets are more advanced-based platforms with extra charting tools, bespoke indicators etc. Webtrader platforms have similar features to MetaTrader but the usability does vary from broker to broker e.g. XTB's award-winning xStation platform is very different to City Index's web trader which is bespoke, customisable and has advanced risk management options. As your start, we do recommend going with MT4 and XM Broker is the MT4 broker however if you like having the option to access charts from another laptop, PC, tablet and different phones then City Index and XTB provide excellent web trader platforms. To access your MT4 account you must have either app or software downloaded to your electronic devices. 

Additional Broker Features to Consider

There are some additional trading features offered by various brokers that to some are considered essential. We are going to outline these features and explain how they can assist and how they can potentially enhance your trading.

One-Click Trading 

You will easily be able to close as well as open up the orders without any hassle. Also, the Take Profit and the Stop Loss levels can be set up pretty easily. So, there is no doubt about the fact that one-click trading options can be the ultimate choice for traders who don’t like extra popup windows. Many traders that scalp the markets prefer these options as it allows them to say focus on their trades. The One-Click option is entering trades with market execution, therefore, is not an important option for swing & positional traders. Many brokers have their online versions of trading terminals (also known a webtrader) like XTB’s xStation. Although this feature is available on Metatrader4 it has been downloaded as a plugin.

Guaranteed Stop Loss

The guaranteed Stop Loss feature can be really important to brokers who want to make sure that the risks are properly managed when it comes to forex trading. The guaranteed stop-loss orders are the ones that work just like the stop-loss orders. However, the only difference is that these orders will be able to close out the trade with the prices that you specify. So, no matter what volatility and gap you have in the currency market or trading CFDs, this feature will be able to manage the risks in the best way possible. Brokers such as XTB and Easymarkets have guaranteed stop-loss which enables traders to be certain of knowing that trade will terminate at the Stop loss price level.

Online Education 

Many software options for online Forex trading come with several expert seminars which can provide a better understanding of the entire process of forex trading for beginners who want to know more about it. These can be used by budding individuals who have zero knowledge of forex trading and want to have an idea about how everything works in the industry. Brokers that offer webinars, seminars, video tutorials and additional trading education support are more valuable to beginner traders. A lot of top regulated brokers offer extra support on how to draw trendlines, use Fibonacci retracement, pivot lines, moving averages etc. AvaTrade broker educational platform the “Sharp Trader” offers a lot of content for their traders. According to AvaTrade broker, Sharp Trader offers “offers a comprehensive range of videos, articles, daily news and trading tools, taking you from trading fundamentals to the advanced strategies of leading professional traders”.

• AvaTrade’s SharpTrader provides good basics to get you started
• XM Broker- Provides excellent online webinars by proven expert professionals for traders of all countries and multi-language
• FXTM – Have also multi-series webinars on various topics covering Risk Management, trading indicators etc.

Social Trading 

Forex brokers need to have interaction between them to have a piece of proper knowledge about how everything works. With the help of Social trading features such as CopyCat trading and Managed Accounts, social traders can easily interact with each other in a safe environment without any risks whatsoever. 
 

Negative Balance Protection 

This feature protects a trader from entering into a negative trading balance. Every broker sets a margin call which means you are restricted to a maximum lot size you can trade. Forex trading is highly leveraged trading and the market is very volatile therefore sometimes a losing trade can exceed risk or stop levels meaning you lose beyond deposit levels. Negative balance protection is useful when a trader leverages more on their trades relative to their account size.

Our recommended brokers for having a Negative Balance Protection feature are City Index & Markets.com.  

Trailing Stop 

Using a trailing stop is a great way to protect profits if you have not established an exit strategy. The trailing stop is a moving stop loss. Your stop price moves at a specified distance behind the market price. In a rising market, it moves higher i.e. a long trade but will remain stationary when the price falls when in that long trade.

Trailing will only occur when the market price moves in favour of the trade to which the order is attached. Trailing stops are designed to lock in profit levels and they literally trail along with your increasing profit and adjust your stop loss levels accordingly. Trailing stops are an important component of a trader's risk management unless they have an exit strategy in their trading plan that might serve them better.
 

Broker Platform Features	XTB UK	AvaTrade	XM Broker
MT4
Webtrader
Guaranteed Stop Order
Negative Balance Protection
Additional Education
Trailing Stops
Scalping
One-Click Trading

Best Brokers for Trading Style

There are many different styles of trading which are decided based on the investment and the trading time frame. Certain types of trading styles (mentioned below) require different types of broker accounts. Through our research, we have given an estimation in terms of no. of trades the average trader places per calendar month. It may take you a while to figure out what type of trader you are especially for those individuals who are new to trading. The science of trading can be very much correlated and attributed to your character. Without question, there is profit and loss in trading no matter the style of trading you adopt therefore it’s imperative to have a risk management plan.   

'Scalping' or Scalp Trading 

Scalping is one of the most active forms of trading which involves a frequent process of selling and buying throughout the entire trading session or in parts of the day. The traders would target the smallest price movements in the day and they will rely on these small movements to gain profits. The targets and the stops on the profits are used to manage the positions which help for minutes and seconds. The profits are pretty small and the traders will be able to place many trades in a particular session. However, the process tends to be a bit risky because it entirely relies on the higher percentage of winning trades. 

A true ECN (Electronic Communications Network) broker that has a live data feed and access to deep interbank liquidity. A broker that offers low-spread accounts with laser-fast execution speed is necessary. 

Average No. of trades placed (day)- 70-150 trades

Our three recommended brokers for scalping are below with their respective accounts:

Broker Comparison for Scalping

	FXTM	Pepperstone	IC Markets
Account Name	ECN Account	Razor Account	True ECN Account
Office Headquarter	London, UK	Australia/UK	Australia
Regulation	FCA	FCA, ASIC	ASIC
Min. Account Deposit	$500	$200	$200
Leverage (Beginners)	30:1	30:1	500:1
Account Base Currency	USD, EUR, GBP	EUR, USD, GBP, CHF, PLN	USD, AUD, EUR, GBP
Hedging Allowed
Max Trade Size	100 Lots	100 Lots	1000 Lots
Maximum No. Positions	300	100	200
Commission per Trade	$2 per Standard Lot	AU $3.50 per Standard Lot	$3.50 per Standard Lot
Reviews	Read Full Review	Read Full Review	Read Full Review

Day Trading

Here we are mentioning some of the features that the traders need about day trading which will help them in getting an idea about the trading style. 

• Constant Monitoring- One of the most important features of day trading is that the positions are changed in a matter of minutes. So, there is a need for constant monitoring of these changes in the position in case something goes wrong. So, the day trader will have to be ever-present until the closing of the trade.

• No Overnight Positions- The time frame followed by the Day trading style is short-term. So, that means the trades that are attained by the style remain there for a single day. As such, there are no overnight positions that are held when it comes to day trading options. 
• No Rollover Interest- There is a rollover interest that is assigned to the trades that are held over a single night. Since the positions in day trading are not overnight, there is no additional rollover interest that is attached to these trades. 

Average No. of trades placed (day)- 5-15 trades

In terms of account type, you would still want a low-spread account (mentioned below) because you want fast execution and you don't want to be in a losing position when you place a trade. That is all there is to know about day trading and the essential features that accompany it. Day trading is an exceptionally easy and fast method of making profits with the help of short-term trades. With a proper understanding of this trading style, traders can make profits with some small gains every single day. 

Pepperstone's Razor Account & XM's Zero Account are amongst our most recommended brokers for day trading.

Swing Trading

Swing trading is the trading style where the positions would be held for more than a day to weeks to capture the market moves. This style suits traders that are occupied with other work and therefore does not require much screen time. The Swing traders would mostly rely on price action and technical analysis to capture the trade entry-exit and entry points for profit. The fundamentals are not that important in this particular trading style as well. The trades will be exited and then established when it reaches the target profit. Another thing to notice about swing trading is that the brokers don’t have to constantly monitor the trades as well. 

Average No. of trades placed (Month)-  7+ trades

As having a low spread is not entirely too important therefore going with a well-regulated broker that has low overnight carry rates is pivotal when swing trading or for that fact positional trading. 

Long-Term Positional Trading

In long-term position trading, the time frame is the longest and it takes months and years to trade the currencies. The traders in these cases would use the combination of several fundamental and technical analysis methods to make the decisions of trading. Also, there are price charts which are made every month to provide more and more insight into the matter and hence it is one of the most important aspects of trading. The price fluctuations that happen in shorter periods are often ignored in such cases as the main focus is on long-term changes. 

Average No. of trades placed (Month)-  1-2 trades

Customer Support

In this day and age where competition rules everything, customer support and client services are some things which should not be ignored if brokers want to have effective results for their trading services. Many different brokers are waiting in line to provide services which would prove to be very beneficial for the clients. Every broker platform is different and especially as someone new to trading navigating through portals understanding how to execute, deposit funds, withdraw funds, open an account, and demo trade can either be easy or difficult. 

All brokers recognise that providing good client support is vital for long-term relationships and retention. We have compared and stacked the best three featured brokers against each other and have assessed them in what languages they offer, methods of communication if there are difficulties and if they provide a personal account manager to guide you through your trading queries. As there are a lot of MetaTrader 4 & 5 guides on the net, many traders have questions using personalised web trader platforms, therefore, it’s very useful when you have your manager at hand to ask questions. All brokers listed below have excellent FAQ sections that more or less cover all potential queries. Amongst the below Avatrade has come in third place due to its lack of phone contact. We would say that over the last year, XTB has shown great customer support with XM taking second place.

	XTB	XM	AvaTrade
Availability	24/5	24/5	24/5
Office Headquarter	London, UK	London, UK	Dublin, Ireland
Account Opening Contact
Telephone			(Slow Response)
E-mail
Live Online Chat
Languages Offered	15+	30+	20+
Personal Account Manager
Reviews	Read Full Review	Read Full Review	Read Full Review
Start Trading	Open Account	Open Account	Open Account

Demo Vs Live Account Trading- Which One?

As a beginner trading, you must apply basic concepts and strategies and slowly develop concepts like risk management and the need for a trading plan. Common topics such as Support & Resistance, Fibonacci retracement, time frame analysis, moving averages, price action trading, trading patterns, Japanese Candlesticks etc. are normally in every trading course/syllabus. You initially learn how to place trades with stop orders and limits, lot size allocation etc.

Demo trading is there to apply the skills but in reality, you can’t achieve monetary success. However, as you are starting you are also familiarizing yourself with the broker platform. Whether the broker offers MT4, MT5 or their own personalised WebTrader it will take some time to get used to fully utilise these platforms. Drawing Charts, placing indicators and placing trades (stop-loss limits and take profits & pending orders) still require you to navigate through the platform. Pepperstone & XM offer the best MT5 & MT5 demo trading accounts. 

Most people who start trading, believe that their results from trading with fake/virtual money will be the same as their results from trading with real money. Just to inform you it is not the case. It is never the case trading with a demo account. The reason: Emotions. Many successful traders have noted that the true application of risk management only works when trading with real money. If you are starting we only recommend trading with small deposit funds so you can grasp the emotional aspect of trading as well as harness your risk management strategy. As mentioned only risk capital that you can afford to lose. We recommend XTB (minimum deposit $250) and PepperStone broker (minimum deposit $200) for trading with small deposits. 

Your capital is at risk when trading with brokers we suggest on this page. All trading instruments on margin carry a high level of risk, and may not be suitable for all investors. Between 65-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs trading work and whether you can afford to take the high risk of losing your money.