Forex trading is an advanced style of investing that involves buying and selling different currencies from around the world.
The foreign exchange market exploded following the Bretton Woods Accords Act of 1971. More than $4 trillion is traded in the foreign exchange market every day, and unlike the stock market, transactions can be made 24 24 hours.
The forex market does not have the volatility of stocks. It takes a rare event to see a currency move more than a penny or 2 in a single day (think the pound after the Brexit vote in 2016).
Low volatility combined with high liquidity sounds like a good investment, right? If you are a smart trader, you can make a lot of money in a short time by trading the forex market.
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What Forex Margin Requirements Mean For Traders
Choose the best forex broker is essential for trading currencies. You need 2 currencies to trade, and you can find over 80 different pairs with select brokers.
However, some are traded more frequently than others, and the hierarchy is often referred to as the Big 7. The 7 most traded currency pairs are:
- EUR/USD (Euros to US dollars)
- USD/JPY (dollars to yen)
- GBP/USD (pounds sterling to dollars)
- USD/CHF (dollars in Swiss francs)
- USD/CAD (US dollars to Canadian dollars)
- AUS/USD (Australian dollar to US dollar)
- NZD/USD (New Zealand Dollar to US Dollar)
Since currency movements tend to be very small on a day-to-day basis, traders increase leverage to turn these small movements into big gains. Leverage and margin are different terms, but both imply the same concept.
Leverage refers to building a position greater than the capital you currently own and margin means how much capital you need to keep in your account to maintain the position.
Leverage is expressed as a ratio, such as 50:1 or 200:1. If a broker offers 200:1 leverage, that means you can buy $200 worth of currency for every $1 you have in your brokerage account. The international forex market is lightly regulated and it is not uncommon to find leveraged options of 200:1 or more.
But thanks to Dodd-Frank legislation, US forex traders are limited to 50:1 leverage ratios. A 50:1 ratio still far exceeds anything you would get in the stock Exchangebut it underscores the craziness that occurs in currency trading.
You can lose huge sums if you don’t know what you’re doing, so don’t dive into currency trading without doing your research. Most brokers offer US traders leverage of 50:1 on “major” pairs and 20:1 on “exotic” pairs.
In addition to those listed above, a few other types of currencies are considered “major”: Swedish Krona (SEK), Danish Krone (DKK), and Norwegian Krone (NOK). To achieve the 50:1 leverage ratio in the United States, both currencies must be considered majors.
What to Look for in a Forex Margin Account
In the United States, forex margin requirements will be fairly standard, so you will need to weigh several options when considering a broker.
Commissions and fees are important aspects to consider, but you will also want a broker with low account minimums and a high number of tradable pairs. The best forex brokers will have the following characteristics:
- High leverage ratios
- Low commissions and spreads
- Low account minimums
- User-friendly trading software
- A high number of tradable currency pairs
Not all forex brokers are created equal and just because a broker has the best margin requirements does not mean they are best for every forex trader. Make sure to choose a broker that matches your trading style and level of experience.
5 Best Forex Brokers and Their Margin Requirements
Here is a ranking of the six best forex brokers and the margin requirements for each. If you are thinking of getting into currency trading, you must first open an account.
Keep in mind that US law prohibits brokers from offering US clients leverage greater than 50:1 for major pairs and 20:1 for minor pairs. In margin requirement percentages, it is 2% and 5%, respectively.
FOREX.com is a subsidiary of Gain Capital and it is one of the best places to trade currencies in the world. FOREX.com offers comprehensive research and education materials on its platforms for novice forex traders. For forex veterans, the brokerage has a terrific platform and a wide variety of currency pairs, all with reasonable margin requirements.
FOREX.com offers multiple pairs at the lowest margin rate of 2%, including EUR/USD, USD/CAD and EUR/CAD. Other major pairs like USD/JPY, GBP/USD and AUD/USD have a margin rate of 3 or 4%.
FOREX.com has 2 different account types. Standard accounts are commission-free and the only trading fees accrued are spreads. In a commission account, you will have access to much better spreads, but it costs $5 per 100,000 contracts.
FOREX.com is one of the best currency trading vehicles in the game and has beneficial features for both new players and seasoned forex traders.
Read our full Forex.com review
- Active and global traders
2. Interactive brokers
Interactive Brokers prides itself on being a low-cost brokerage firm with international access. When it comes to forex trading, IB offers some of the most competitive commissions in the industry while maintain leverage ratios of 50:1 and 20:1 for major and exotic currencies, respectively. The commission schedule is shown below:
Using this chart, a forex trade of 100,000 EUR/USD contracts would cost $2 in total in commission. Forex traders with large accounts enjoy even lower commission rates.
Interactive brokers has a complete platform dedicated to forex trading (aptly named FX Trader) and supports 23 different currencies. You will get margin rates of 2% (50:1 leverage) on USD, CAD, EUR and DKK and 3% (33:1 leverage) on AUD, CHF, NOK, NZD, SEK.
If you are not allowed to open a cash forex account, these margin rates could be higher. Forex account holders can trade 24 hours a day, from Monday morning to Friday evening.
Read our Interactive Brokers review
3. TD Ameritrade
TD Ameritrade is one of the leading investment platforms on the planet with access to more sources of research and analysis than any other broker. While these services often incur higher commissions (TD Ameritrade still charges $6.95 per stock trade), there are plenty of bells and whistles to enjoy about the platform, especially if you’re using thinkorswim.
TD Ameritrade has more 70 different pairing combinations and all of them can be traded on the thinkorswim platform, which could provide the best forex tracking and analysis tools in the market.
You will be able to follow 6 different currency pairs from the same screen and hundreds of different indicators are available to mark the charts. thinkorswim separates currencies from bonds and stocks into different easily accessible tabs, each complete watchlist capability to build.
If you choose the Foreign Exchange Commission Account, TD Ameritrade charge 10 cents per 1,000 units. If you wanted to trade 300,000 USD/CAD units, it would cost $3 and you would need to have $6,000 in your account to meet the 2% margin requirement.
Like Forex.com, TD Ameritrade offers commission-free forex trading, but the spreads are much higher.
Read our TD Ameritrade review
OANDA is an excellent forex broker for budget-conscious traders. The company requires no account minimum to get started, and there is no minimum size required to execute trades.
OANDA is also involved with 6 different regulatory groups around the world, giving customers an added sense of security. You will be able to trade 71 different currency pairs, but only 5 pairs can benefit from 2% margin (50:1 leverage).
Margin requirements of 3% or more exist on all pairs involving the Yen, Australian Dollar and Swiss Franc.
Like most brokers on this list, OANDA offers forex traders 2 options: commission-based trading or spread-only trading. Commissions are $5 per 100,000 units, which is the same as FOREX.com but more expensive than TD Ameritrade.
Spread-only traders can benefit from OANDA’s price transparency engine, which uses proprietary technology to ensure that spreads closely match those of the global market. OANDA has several different trading platforms and also supports MetaTrader 4.
Read our OANDA review
eToro’s online platform already offers many of the world’s most popular currencies. You will also receive additional benefits, such as real-time execution of market orders and unlimited daily withdrawals.
View real-time data, access in-depth analysis tools, and be the first to catch trends wherever you are. You can also try eToro’s many innovative features risk-free with a $100,000 virtual wallet.
eToro’s unique CopyTrader feature allows you to “copy” buy and sell orders placed by professional traders. In exchange, the trader receives a commission each time he is copied, which incentivizes professionals to make profitable trades.
Read our eToro review
Know Forex Broker Margin Requirements
The Forex markets can be an exciting next step for experienced day traders, but they are not something the inexperienced or the misguided should gamble with. In addition to understanding charts and indicators, forex trading also requires a solid understanding of macroeconomic events in the global political and economic spheres.
Forex has no earnings reports or trading papers to study, so stock trading skills may not translate to the forex market. Make sure you have a good understanding of forex trading before opening an account.
Frequently Asked Questions
questions and answers
What are safe forex margin levels?
You want to maintain margin levels at 1% of equity for a single trade and 5% for all positions.
Which forex brokers have the best margin rates?
Several excellent brokers include FOREX.com, Interactive Brokers and OANDA.
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