Among the multitude of trading solutions available today, an often overlooked concept is utilizing brokerage offerings to fully empower trading. When considering the number of forex brokerages as well as their offerings, regulatory conditions and commission structures, the selection process begins to resemble thesis research. To simplify the broker selection process, the StockBrokers.com research team conducted a review of forex brokers. In total 16 online forex brokers, chosen because of their accessibility and applicability to retail investors, were broken down across seven categories to determine an overall winner.
Testing and review methodologies are based on team interactions with each brokerage as an actual live client to extract all information and data. The research process included spending several hundred hours conducting numerous calls to brokers, developing "spread recording" algorithms, downloading dozens of platforms and analyzing virtually every broker offering. Whether a trader is seeking to lower commission costs or extend platform capabilities, the following unbiased research will assist in maximizing the trading experience.
Trade costs
Trade commissions often are overlooked by casual investors, but their impact on large, active accounts is substantial. High commissions and poor market spreads on highly leveraged products like futures contracts and currencies will result in a large negative impact on returns. When comparing trade costs for trading stocks, options and futures the information is relatively straightforward. The brokers are offering access to the same markets with the only difference being their commission charged for entering and exiting trades.
Forex requires much more investigation to unearth hidden costs and commissions charged by each broker. Many brokers advertise "commission-free" accounts, but there’s a catch: The spread between the bid and the ask price is increased to compensate the broker for the trade. This increased spread especially can be troublesome considering forex trading is done on such high leverage. Frequent traders easily can accumulate spread-based costs that eliminate otherwise profitable trades. Trade costs arguably are the most important factor if you are an active trader or managing a large account.
The broker from this group of 16 offering the most cost effective forex trading is MB Trading. Unlike many brokers, MB Trading provides their low-cost trade structure to all their traders. Whether investors have $500 or $50 million in their account, they will trade the same market with the same low commission rate. MB Trading delivers market spreads that can go as low as 0.1 pips on the EUR/USD while charging a flat commission rate. They advertise this commission rate very clearly ($2.95 per 100k USD in volume), which equates to $5.90 for round-trip market orders. In addition to their low market order rate, MB Trading recently started paying their traders back $1.95 of their commission for using limit orders in lieu of a market order. Limit orders create liquidity that helps MB Trading deliver their clients even tighter spreads. So traders that use limit orders will end up paying only $1-$2 per round trip.
Winner: MB Trading
Runners-up: Dukascopy, Alpari, FxPro, CitiFX Pro
Platforms & tools
A professional investor is only as good as the resources at his disposal. The trading platform and tools provided by brokers must be robust and flexible to fit every trader’s needs. Compared for this section were each broker’s premier trading platform, tools and automated trading functionality. Top finishers offered traders the best set of tools to get the job done.
Coming in at number one is FXCM. FXCM offers clients six different platforms to choose from, each with their own strengths while working in synergy as a whole. For example, FXCM’s Strategy Trader platform can make automated entries that can be managed from one of their other manual trading platforms in real time. For professional investors, FXCM offers their Active Trader platform that features tighter spreads, level 2 quotes and indicators for short-term market liquidity. Although FXCM doesn’t feature a single, all-inclusive platform, the quantity of high-quality trading tools and automated trading technology makes them an ideal starting point for any type of investor.
Winner: FXCM
Runners-up: GFT, thinkorswim (by TD Ameritrade)
Research & commentary
Because of the fast paced and highly leveraged nature of the forex market, we were on the hunt for brokers offering frequent and accurate updates to their research and commentary. When focusing solely on commentary, GFT leads all forex brokers. Daily professional reporting from GFT’s Kathy & Boris, who combined have 30+ years of experience, includes market recaps and the current economic climate. Kathy & Boris also answer user questions from GFT clients that have posted feedback. Beyond GFT’s commentary offering, the broker also offers notable research tools such as proprietary technical analysis and intra-day forecasts.
The overall winner in this category, however, was Dukascopy. Dukascopy managed to edge out GFT for the top spot with their comprehensive research tools that offer traders multiple insights into market events. Some of their most notable segments include the "Sentiment Index," which summarizes the long/short ratio of all currency pairs, and the "Currency Index," which reduces a particular currency to a sort of absolute value based on its movement against every other currency. Their "Dukascopy TV" also was impressive (see Mobile trading, page 6).
Winner: Dukascopy
Runners-up: GFT, FXCM
Investment offerings
Foreign exchange rates are affected by a myriad of factors ranging from central bank rates to fluctuations in commodities and stocks, and even global disasters. Sooner or later traders are going to want to incorporate investment strategies that include different securities outside the typically traded major pairs and crosses. For the investment offering category, we rated brokers on their range of markets based on the number of currency pairs offered, as well as futures, stocks and options. Other factors considered were unique account management services and technologies that give investors a market edge.
While multiple online brokers offer stock trading alongside forex, only two of them offer it in a seamless trading environment with a single account. MB Trading and thinkorswim offer a full range of markets including stocks, options, futures and a large number of currency pairs. Providing access to 117 different currency pairs, thinkorswim offers trading in many exotic currencies such as the Israeli new shekel and Korean won. MB Trading has other features for investors who are serious about emerging automated trading technologies. They offer free VPS hosting, a FIX gateway, quote API and even a development kit for traders looking to code their own systems directly to MB Trading’s server backbone.
Depending on the client’s investment goals and trading strategies, these brokerages can offer more than just the standard set of major currencies. Those traders looking to take advantage of emerging markets or hedge international business exposure should review the exhaustive list of currencies provided by thinkorswim. If they want to utilize the latest technology for rapid trade execution and millisecond monitoring of market depth, they should take a look at MB Trading. With rapid globalization taking place, forex isn’t just for day traders anymore.
Winners: PFG Best, MB Trading, CitiFX Pro, thinkorswim (by TD Ameritade)
Mobile trading
Today’s mobile technology enables traders to track positions, move stop levels, set alerts, execute trades and research markets from virtually anywhere in the world. Dukascopy’s mobile trading application delivers more functionality than some brokers offer throughout their entire organization. Features such as full screen charting, "Movers & Shakers" and streaming news will absorb traders while offering them the ability to keep an eye on their positions.
What places Dukascopy above all other mobile applications from the group we examined is their inclusion of Dukascopy TV. From anywhere a connection is available, traders can tap into professional video commentary that is original, informative and insightful. Segments such as "consensus forecasts" and "midday snapshot" help to add perspective as well as provide a means to generate new trade ideas. Whether a trader is looking for powerful functionality or a casual way to watch prices, the functionality of Dukascopy’s mobile phone app can accommodate virtually any need.
Winner: Dukascopy
Runners-up: Forex.com (Gain Capital), thinkorswim (by TD Ameritrade)
Conclusion
Unfortunately, we were not able to review all available forex brokers. However, the research was exhaustive and the metrics clearly defined, so if your broker was not included, you should be able measure where they are in comparison to the 16 brokers identified.
While the needs of every trader are different, our objective is to establish which brokers will accommodate each investor’s particular trading style.
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Note: This review was based on the results of an analysis of 16 forex brokers by StockBrokers.com. For the complete 2011 review, including commentary about customer service and education, detailed breakdowns of the "runner-up" brokers and additional analysis visit StockBrokers.com.
Pat Mathieu & Kevin Maykovich are analysts with StockBrokers.com. They managed all research efforts, broke down key elements and presented these highlights. The entire review can be found at StockBrokers.com.
