How to Choose the Best Forex and CFD Broker

What is a Forex broker?

Forex brokers are institutions that give their clients the opportunity to invest in the currency exchange market. The Forex market is the world’s largest international market, with an estimated daily turnover of trillions of US dollars.

What is the Forex market?

The Forex currency market is an over-the-counter market, which means that it has no physical location and its transactions are carried out directly between market participants via the Internet or (currently much less frequently) by phone. In principle, this market operates continuously, twenty four hours a day and five days a week. It mainly involves transactions carried out through banks.

The biggest advantage of the Forex market is its high liquidity, which makes it an easy task to sell or buy a given instrument in any quantity. 

Most Forex brokers offer their clients the opportunity to trade CFDs, which are based on the prices of underlying instruments, such as: raw materials, shares, bonds, ETFs, cryptocurrencies and stock indices.

What is a CFD?

CFD – a contract for difference – or, more accurately, a contract for exchange difference – is an agreement between two parties to settle an amount equal to the difference between the opening price and the closing price of the position without having to physically exchange the asset. Hence, the term “contract for difference”.

It is worth noting that CFDs have a long history of use. These contracts were introduced by financial institutions in the early 1990s, with retail investors gaining access to them at the end of the 1990s. Since then, CFDs have been gaining in popularity among investors thanks to their simple design, a built-in leverage mechanism, a low entry barrier and thousands of available markets. It should be noted that the above distinguishing CFD features may, in certain cases, be detrimental to the interests of traders. For example, a low entry threshold makes this market easily accessible to those with no sufficient knowledge or experience to make informed investment decisions, which often results in significant losses. Similarly, financial leverage can also be “harmful” to investors (and, more specifically, their funds). Therefore, it is very important to have a good understanding of what it is and how it works, as well as to work out how to manage capital effectively. If you want to learn more about CFDs, we recommend reading this short article on CFD trading.

Contracts for differences have several key features that set them apart from other financial instruments:

• CFDs are derivative instruments
• CFDs are leveraged
• CFDs can have almost all financial instruments as their underlying instruments
• CFDs allow users to make a profit on both price rises and falls, providing that the market moves in their favour
• Please note that while CFDs can magnify your profits, your losses are also magnified in the same way

For a more in-depth understanding of the topic, we recommend reading this article on CFD trading.

How are Forex and CFD brokers ranked - how to find the best broker?

Now that we’ve briefly discussed what a Forex and CFD broker is, it’s time to look at what investors can do to find the right broker. First of all, it’s important that your chosen broker is willing to work closely and effectively with you.

Secondly, when selecting a broker, you must take into account you own needs and requirements. Listed below are the most important criteria for selecting the best Forex and CFD broker.

Legal arrangements, guarantees

The Forex and CFD brokers providing investment services are expected to comply with legal requirements of the country in which they operate regarding the necessary licenses and permits issued by the relevant financial market supervision authorities. These bodies are responsible for overseeing the activities of other financial market entities, including Forex and CFD brokers. The aim of such financial market supervision is to ensure stability, safety, transparency and proper functioning of the market.

The role of the regulatory bodies is to safeguard the interests of financial market participants. In addition, these bodies are required to provide reliable and up-to-date information about those supervised by them, as well as protect their legitimate interests against unfair commercial practices and other threats. Trustworthy Forex brokers operate in compliance with applicable laws and guarantees. The supervisory bodies include: FCA, CySEC or PSFA. Each Forex and CFD broker ranking should not only contain information on the broker’s regulated or non-regulated status, but also details of the regulatory body supervising the broker (since each regulatory body has its own financial regulation policy).

The FCA (Financial Conduct Authority) is a body responsible for supervising the financial market and its participants in the UK. FCA was established on 1 April 2013 through the takeover of the FSA's responsibilities (Financial Services Authority). The United Kingdom, which is one of the most important financial centres in the world, must protect its image to maintain public trust, provide adequate supervision of their own bodies and ensure an adequate level of security. The FCA is a non-governmental supervisory authority operating independently of the British government. The main task of the FCA is to ensure proper functioning of the financial market and its participants. It is responsible for providing consumer protection and ensuring the stability of the UK’s financial system. In addition, the FCA carries out a number of activities globally to strengthen cooperation between different countries with a view of ensuring effective implementation of international standards and legal procedures.

The CySEC (Cyprus Securities and Exchange Commission) is an independent supervisory body in Cyprus. Its main tasks include supervising the investment market and its participants, auditing the transactions and operations carried out on the stock exchange, including supervision over the Cyprus Stock Exchange. CySEC aims to ensure that the Cyprus financial market is seen by investors as a safe, reliable, stable and attractive investment environment. CySEC strives to achieve a good international reputation.

The PFSA (Polish Financial Supervision Authority) is the most important supervisory body responsible for the Polish financial market. It was established on 21 July 2006 as a government body. The PFSA is responsible for ensuring proper functioning and development of the financial market and effective communication between its participants. The PFSA takes an active part in developing legal acts on financial market supervision. The Financial Supervision Authority has been established to prevent irregularities or violations of law and ensure adherence to accepted practices. Its purpose is to protect the interests of both market participants and consumers. The PFSA is also authorised to impose financial penalties on infringers.

XTB is a large, multinational Forex and CFD broker, and has been in continuous operation since 2005. Due to the fact that XTB operates in a number of different countries around the world, it is supervised by a number of supervisory bodies, including all those listed above.

Client service language

Making sure that your broker speaks your preferred language is essential when it comes to choosing the right broker for your needs. The most straightforward way to make sure they actually speak your language is to give them a call. Unfortunately, some brokers – despite having a website in a given language – do not provide any client service in that language. This is an important issue, because the lack of proper communication can lead to a number of misunderstandings.

It is important that you are able to effectively communicate your needs to your broker, and feel comfortable working with them. This is why their client service language is so important. Moreover, it’s always a good idea to check whether the broker's website, registration form, instrument specifications and trading platform are all available in your language.

XTB is an international company with offices around the world, committed to providing their clients with the best possible offer and the highest standard of service. For this reason, the website of the company is available in a number of languages. Their multilingual client service facilitates communication, problem solving and response times in relations with clients. With an individual client approach, the company is able to provide – in a timely and effective manner – requested assistance that is tailored to individual needs.

Trading platform 

One of the most important considerations when selecting the best Forex and CFD broker is choosing the right trading platform. A trading platform is simply a specifically designed software system for computers or other devices that allows users to trade on financial markets via the Internet. By using a transaction platform, investors can buy and sell in real time the financial instruments of their choice offered by the broker. That is why such platforms are required to operate efficiently, quickly and smoothly, as well as have an interface designed to offer the most intuitive user experience.

A good transaction platform will offer a wide range of analytical tools that every investor needs. These include technical analysis indicators, chart drawing tools, numerous studies and statistics or simply access to the latest and most important market news. Trading platforms, in particular proprietary ones that are created by brokers themselves, are very technologically advanced and give users the ability to implement their own solutions and strategies using the API (Application Programming Interface).

Often, brokers will strive to maintain a long-term relationship with their clients by providing them with a customised solution to their problems. One of the best ways to achieve this is through a trading platform that is highly functional, transparent and easy to use for both beginners and experienced traders. 

MT4 is one of the world’s most well-known transaction platforms that peaked in popularity in the first decade of the new millennium. The MT4 platform is still popular among investors, which is why many of them provide MT4-based services.

However, for years it has been lagging a little behind the latest trends in the industry, so many users started looking for new and better solutions. Forex and CFD brokers started to create and constantly improve their own platforms to meet the growing needs and expectations of their clients. This is how XTB’s xStation 5 came to be.

Trading platforms can generally be divided into those offered by specialist external companies that provide ready-made solutions, and those created by the Forex and CFD brokers themselves. When comparing these two types of platforms, the solutions developed by brokers tend to fare slightly better, mainly because their updating processes are often a bit faster. Moreover, brokers often try to create unique solutions that are tailored to specific customer groups. A modern broker will constantly try to improve their trading platforms by incorporating new technologies.

What types of platforms are offered by XTB? XTB, as a leading Forex and CFD broker, offers both the MT4 platform and the innovative xStation platform, designed specifically to meet the needs of their investors. xStation is exceptionally popular with their clients, has won several awards and was ranked well in numerous independent industry lists. It has also been given the highest score by the users.

xStation is easy to use, functional and has a friendly interface. It can be used on a number of different devices, such as computers, tablets, phones or even smartwatches. The investor should always be up to date with the latest market information without having to actively search for it. The xStation platform offers users the ability to listen to the latest news through a live broadcast to keep up with the latest market opportunities. The most essential platform features include a macroeconomic calendar that provides an insight into crucial economic data, including historical and projected ones, or analytical tools to draw support and resistance lines on charts, pricing patterns or trend channels. An extensive offer of several dozen different indicators is also available, including: Ichimoku, Bollinger Bands, Fibonacci or Gann measurements, markings derived from the Elliott Wave Theory and much more. A wide range of indicators and tools helps investors to streamline their decision-making process. In addition, the xStation platform gives users access to advanced market studies and comments from market analysts, in addition to providing them with the opportunity to use educational information, market sentiment, account statistics, stock scanner, and ETFs.

Undoubtedly, a transaction platform is a very important tool for both beginners and experienced investors, as it is used to place orders, analyse charts and run investment portfolios. It must be well suited to your needs, easy to use and effective in executing transactions. If you are not sure whether to set up a real account via the platform due to having insufficient information about its functionality, you can use a demo account. This account allows users to thoroughly test the platform features and available tools, since the demo account is very closely modelled on the real trading account. The demo version is available from XTB for a free trial period of 30 days.

Due to the fact that XTB offers both the world’s most popular platform, i.e. MT4, as well as xStation 5, the broker is favoured by many Forex and CFD brokers around the world.

Costs

Another important issue when choosing a Forex and CFD broker is the amount of account fees charged by the broker. Most often, these costs will include account maintenance costs, costs associated with spread levels, commissions charged or swap points. It’s reasonable for clients to expect to be provided with clear and transparent rules on fee payment. Nobody wants to go through the stressful experience of having to deal with hidden costs. Brokers are expected to make sure that these matters are communicated in a clear and transparent way.

Forex and CFD brokers are expected to offer their clients competitive prices without compromising the level of service and quality of product. More often than not, they will place a list of fees for a given account type on their websites under one of the tabs (e.g. Account information). In this way, all crucial information relating to service costs can be displayed in a clear and transparent way. This facilitates cooperation and helps to avoid possible misunderstandings.

XTB offers two types of accounts: STANDARD and PRO. They differ in terms of the costs involved and the cost calculation method used. In the case of Standard accounts, the main cost of opening an order is usually a spread, while for Pro accounts spreads are lower, but a commission fee is charged for opening and closing the order.

Both types of accounts are maintained free-of-charge, provided that the client carries out at least one transaction per year.

The client has access to over 1,500 derivatives from both account types. These include Forex, indices, commodities, stock and ETF CFDs.

As already mentioned, cost transparency is of the utmost importance when choosing your broker. The xStation trading platform has a very useful feature that promotes transparency – the calculator for determining the value of all transaction parameters, such as a pip or spread value for a given order volume. These transaction parameters are expressed both in lots and units. If the investor sets up a Stop Loss or Take Profit order, the platform will immediately display information on potential profit or loss levels. The calculator provides a transparent view of all transaction parameters, both before entering into and during the transaction. Thanks to this, the client has continuous access to information on fees and costs.

XTB offers two types of accounts: STANDARD and PRO. They differ in terms of the costs involved and the cost calculation method used. In the case of Standard accounts, the main cost of opening an order is usually a spread, while for Pro accounts spreads are lower, but a commission fee is charged for opening and closing the order.

Both types of accounts are maintained free-of-charge, provided that the client carries out at least one transaction per year.

The client has access to over 1,500 derivatives from both account types. These include Forex, indices, commodities, stock and ETF CFDs.

As already mentioned, cost transparency is of the utmost importance when choosing your broker. The xStation trading platform has a very useful feature that promotes transparency – the calculator for determining the value of all transaction parameters, such as a pip or spread value for a given order volume. These transaction parameters are expressed both in lots and units. If the investor sets up a Stop Loss or Take Profit order, the platform will immediately display information on potential profit or loss levels. The calculator provides a transparent view of all transaction parameters, both before entering into and during the transaction. Thanks to this, the client has continuous access to information on fees and costs.

What other factors should be considered when selecting a Forex and CFD broker?

Possible position size

A position size is defined as the investor's commitment level on a given market, achieved through the purchase or sale of a financial instrument. Selection of a position size by the investor depends, among other factors, on the position opening options offered by their broker.

The position size on the Forex and CFD is expressed in lots. In Forex trading, 1 lot = 100,000 units of the base currency. So, if the investor says that they are buying 1 lot of GBP/USD, they will have an exposure of 100,000 pounds. There are also smaller transaction values such as mini lots (0.1 of the standard lot) or micro lots (0.01 of the standard lot). This translates, respectively, into 10,000 and 1,000 units of the base currency.

Before choosing a broker, you should check whether they provide the transaction volumes you need. For example, if you plan to invest with small capital, you broker should be able to provide you with micro lots. This will allow you to have greater flexibility in selecting your preferred transaction volume, which translates into more risk management options. 

Typically, XTB states the order value in lots, but the values in units are also on display in the order window. Thus, the investor regularly receives information about the exact position size in both lots and units. The STANDARD account allows the investor to open orders of 0.01 lot and its multiples (e.g. 0.16 lot) (this does not apply to all financial instruments, e.g. contracts for shares or cryptocurrencies are excluded).

Education

The best investment you can make is in yourself and your skills that can help you achieve long-term success. The more we know and experience, the better we can be. An adequate level of knowledge, practice and additional skills such as analytical thinking, can come especially handy when it comes to investing money. Moreover, by investing your money, you can learn humility, patience, discipline and gain the ability to make difficult decisions.

In the world of finance, education should also be given a very high priority. Forex and CFD brokers are often expected to pay special attention to providing their clients with various training courses, webinars or face-to-face meetings to introduce them to new concepts, expand their knowledge, share views and practices, or just to hold a talk with market experts. They are often committed to developing and expanding the education section on their website. XTB ensures that the training provided is suitable for the investor’s level of knowledge and experience.

Available markets and instruments

The investor looking for the best Forex and CFD broker should carefully consider the pros and cons of each broker’s offer. The focus should be on what they offer in terms of market access and the number of available instruments. Customers like to have everything in one place, so the winning offer will be rich and varied. Obviously, having a lot of options to choose from is far better than having no options at all. More and more clients know exactly what they want and are more determined to get it. With this in mind, a modern broker must be able to provide the investors with services and products that meet their expectations in every respect.

The Forex and CFD market offers investors a wide range of instruments. A great number of available instruments causes brokers to compete for new clients by coming up with more and more ideas. Investors can choose from more popular instruments, such as currency CFDs (the most liquid: EUR/USD, EUR/JPY and GBP/USD), commonly used raw materials, such as oil and gold, or more exotic instruments, such as corn, wheat, cocoa, sugar, CO2 emissions contracts. The broker’s offer to investors also includes CFDs on shares and ETFs, which, in certain cases, give investors – as an added value – the ability to trade on falling prices of the underlying instrument.

With all this in mind, it’s often a good idea to diversify your investment portfolio to limit the risk that would otherwise result from investing all you funds in a single instrument. Security of funds is a top priority issue, which can only be ensured by making sound investment decisions. A varied portfolio of financial instruments helps to reduce the risk of failure. The broker may offer a wide range of instruments (it's good to have more choice), but not all of them need to be used.

XTB offers their clients access to over 1,500 derivatives, including CFDs on currencies, raw materials, indices, shares, bonds and ETFs. This rich offer opens up the possibility of trading on both the domestic and foreign market. There are 48 currency pairs available on the Forex market alone. XTB provides its clients with the opportunity to invest in real shares that are listed on the Warsaw Stock Exchange, as well as in shares from EU companies and US companies, such as Facebook, Amazon or Coca Cola.

Rankings, comparison websites, opinions, and awards

Before choosing a broker, it is worth going through available broker rankings and comparison lists to find all relevant information. Unfortunately, it is often the case that ranking scores are artificially inflated in favour of selected affiliate partners.

Therefore, the next step should be to check how the broker is rated on industry portals and forums. However, the best option is to ask other traders about their opinion on the broker. Of course, you should never completely trust any opinions from the Internet or an unverified source, especially with regard to such complex matters as forex trading and investing, but you should certainly take them into account when making your final choice.

Finally, we should not forget about the industry awards that are an important indicator of the quality of service provided by the broker. The more renown the portal/institution awarding the prize, the more prestigious it is. 

XTB has won a number of prestigious awards. Listed below are those received most recently:

• 2019 Best in class (Top 7 best brokers in the world) 2019 by ForexBrokers
• 2019 Polish Forex Broker of the Year by Invest Cuffs
• 2019 Polish CFD Broker of the Year by Invest Cuffs
• 2019 Best CFD Cryptocurrency Broker as rated by Good Money Guide
• 2019 Best CFD Broker as rated by BrokerChooser