Trading currencies can be exciting and fast-moving, but only if you are using the right forex broker. If you’ve just started looking at brokers, you probably noticed that many of them offer services to people in the U.S. However, it’s important to note that you must use a forex broker registered in the U.S.
Many foreign brokers offer services to U.S. residents, but the Dodd-Frank Act requires brokers to be registered in the U.S. before they can legally provide trading services to people here.
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You may have already heard of many of these firms, but we will make a comparison to help you figure out which is the best broker for you. Before we go through the two best brokers, we should explain the different types. There are five main types of forex brokers, which are ECN, MM, NDD, STP and DMA. All broker types are not created equal.
Types of forex brokers
ECN brokers use electronic communications networks to serve as a financial intermediary between participants in the currency markets. They consolidate price quotes from multiple participants, which means they can usually offer tighter bid/ ask spreads than other broker types. ECN brokers charge a fixed commission per transaction.
Also known as dealing desk brokers, MM brokers are market maker brokers, and they accept and fill orders for currency trades. Orders sent to an MM broker are not actually sent to the currency market. When traders win, the MM broker loses, and vice versa. One big problem with MM brokers is the fact that they can see traders' account balances, orders and stop-loss levels. They can also manipulate the spreads, slow down the execution of orders and even refuse to fill an order by sending requotes. In general, it's best to avoid MM brokers if at all possible.
NDD brokers are no dealing desk brokers, which means they are trading platforms from a forex broker that offers unimpeded access to interbank market exchange rates. They share some things in common with STP (straight-through processing) and DMA (direct market access) brokers. DMA or STP brokers serve as an intermediary between the trader and the currency market, charging the trader a fee for the transaction. These types of brokers are great choices because they want their traders to win. After all, it means they will keep trading with them.
eToro could be the best broker in the U.S. because it acts as an NDD and STP broker instead of an MM broker. Trading fees are low, as are minimum deposit amounts, depending on which method you choose. Wire transfers don't cost anything, although bank cards require at least $300. Withdrawals are free, and the minimum withdrawal amount is $30. eToro offers social trading, which enables you to learn about forex trading from others by watching what they do.
The only base currency eToro offers is the U.S. dollar, which might not be an issue for most U.S. residents. The platform also accepts 14 other currencies as deposits, but there is a conversion fee. If you don't take any action for 12 months, eToro starts charging a $10 inactivity fee. The minimum initial deposit is $200, and the withdrawal fee is $5.
Forex.com is a solid broker, although it does act as an MM broker at times, so you have to be careful with them. However, their reputation is stellar, and it's easy to see why. The broker offers more than 80 currencies for trade and 91 different forex pairs, which include not only major and minor currencies but also exotic ones. The minimum initial deposit is only $100, which is lower than the average.
There is no withdrawal fee, deposit fee or account fee. Available deposit and withdrawal fees include debit and credit cards, digital wallets and wire transfers. Forex.com does not offer social or copy trading, which means you must figure everything out on your own. It can take one to three business days to open an account, and Forex.com charges a monthly inactivity fee to those who don't log into their account in a year.
Final words on forex brokers
It's always a good idea to check out forex brokers before you sign up with any of them, so be sure to do your research ahead of time. MM brokers stack the deck against the trader, so it's always best to avoid them if possible. However, even reputable companies like Forex.com, IG and Interactive Brokers act as MM brokers, so you can't get away from them completely.
There are many other brokers besides the two on this list. Some examples of other reputable forex brokers include IG, TD Ameritrade, Saxo Bank, OANDA and Interactive Brokers.