Broker comparisons are part of the due diligence you must perform when you first learn to trade CFDs, shares or commodities. Doing broker research is often encouraged in forex trading advice and similar investing fundamentals articles, for good reason. You cannot trade without a suitable platform, and these are provided by brokers. Each broker has its own fee structure, customer support capabilities, educational and other tools, and unique features to differentiate their offerings.
Given the growth of forex or FX trading in Australia, there is more incentive to do proper research as the competition among brokerage houses is intense. In fact, the percentage increase of FX traders in the Oceania region has increased by an incredible 400,000%! This represents the highest percentage jump in FX traders in the same period anywhere on the planet.
The fundamentals of Forex
Before we break down the top FX brokerage houses, it may also be worthwhile to look at which other terms you need to know and understand. This forms part of your FX trading learning curve, along with choosing the broker who fits your needs best.
Foreign exchange is when you trade the currency from one country for that of another. These two currencies form a currency pair. When you travel, you partake in forex dealings when you exchange your own currency into that of your destination country. When you trade in forex, you deliberately trade pairs chosen to make you a profit at any given point in time based on the market fundamentals of the factors that are likely to drive each currency up or down.
Leverage is an important term and concept in FX in the same way it is important in CFD trading. You can enter a trade position without putting down the full capital required, using just a small amount or a fraction of the amount required. This is because you don’t control the underlying asset – the currencies involved – at any point. Instead, you merely hope to gain a profit, in which case you will “own” or “control” your gain. Leverage is also where the element of risk arises; you can multiply your profits or win big, but you can also incur devastating losses.
You also need to understand the Percentage in Point (PIP) concept. Not only is it intrinsic to your understanding, but there are strategies that revolve around PIPs. Most currencies are traded up to the fifth decimal point. The fourth one is referred to as the PIP. These decimal points play a big role given the large volumes that are traded and can make a significant impact.
To calculate the PIP value, use the following formula: 1/10,000 (a PIP) ÷ Exchange Rate x number of units = PIP value. You should also be aware of forex lot sizes, types of orders, and all the various kinds of risks you can expect along the way.
Here’s a look at some outstanding Australian forex brokers.
Pepperstone: Best overall
Pepperstone is no stranger to top rankings or awards. They have a user-friendly platform with technology-forward tools. This is hardly surprising given their commitment to technical innovation that doesn’t take a tech guru to understand. They pride themselves on being a company built by traders for traders, and that is what they deliver in their customer-centric approach to many touchpoints, including customer service and withdrawals, for which they are rated number one.
City Index: Best for a variety of trading options
City Index has the edge if you’re looking for options that are not readily available elsewhere. Capitalize on markets and opportunities that are more niche or off-the-beaten-track and gain access to many great tools.
Think Markets: Best for a customer service-oriented broker
Think Markets relocated from New Zealand to Australia in 2015. There are basically three account levels, and each one is priced differently. There may not be a lot of options, but if you opt for a standard account, it is commission-free.
FXCM: Best for automated trading options
FXCM is a global power player in the forex trading world. The service is rich in automated trading bots who will help you execute trades according to the selection criteria you’ve made. FXCM comes with a good reputation built up over a solid history, and it is well regulated over four jurisdictions, providing superior peace of mind.