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A globe with currency symbols superimposed on itFOREX.com is a trading platform that lets users trade foreign currency pairs. This is a relatively rare asset class, one which even few full service trading platforms offer. While using FOREX.com feels somewhat like trading on a legacy system, this is a good platform for trading foreign currencies. Before diving into the world of foreign currency trading, work with a financial advisor who can help you decide how much of your portfolio should be devoted to this and how best to pursue this type of investing.

Services & Feature: What Does FOREX Offer?

As a threshold matter, it is important to understand that trading foreign currencies (forex) is a highly volatile, very risky section of the market. That doesn’t mean that you should necessarily avoid it. However, you should reserve this for the speculative section of your portfolio.

Foreign currency is traded in pairs. For example, a USD/GBP currency swap means trading U.S. dollars against British pounds, while EUR/JPY trades the euro against the Japanese yen. As a result, when you trade currencies you will often have to exchange the base currency in your account (for example, U.S. dollars) into one of the currencies in the swap.

FOREX.com is a feature-limited trading platform. It allows you to trade foreign currency only with almost 100 different currency pairs on offer (although it also offers a Gold/USD pair). As a result, you cannot trade any other financial product on this platform, including mainstream assets such as equities, funds and bonds. Unless you have an extremely specific (and very risky) investment strategy you will need another investment platform in addition to FOREX.com.

Investors with FOREX.com have three different platforms to choose from. As with many trading services, the desktop platform offers the most sophisticated set of options. It has a truly impressive range of technical indicators to review, all of which can be laid onto customizable charting options that allow you to build information in whatever way suits you. In addition to the desktop platform, traders also have access to web and mobile-based platforms. While the mobile platform offers a feature-limited set of options, FOREX.com’s web platform offers almost as many tools as the desktop version does.

In fact, with the range of technical indicators, customization options and trading tools available, most investors probably won’t notice the difference between the web and platform versions of FOREX.com.

However, while its research options are comprehensive, FOREX.com offers a limited set of complex trading instructions. In this regard it falls short of some of its peers. You can enter basic orders such as stops, limits, take profit and stop loss, however the system lacks the more sophisticated conditional orders that other currency trading platforms sometimes offer. This is a particularly noteworthy omission given how quickly currencies move, and how important even small price changes can be.

Finally, FOREX.com offers a terrific range of educational options. Although few of these products are available from within the trading screen, the company’s website offers in-depth analysis and market research that will help traders both from a fundamental analysis perspective and for those just looking to learn how to trade. That said, do not expect asset-specific fundamental analysis. There are no tools for that anywhere on the platform.

Fees: How Much Does FOREX Cost?

There are usually four types of fees to look out for when choosing a trading platform. You should look out for these when evaluating any investment or trading service:

  • Trading Fees – Any fixed charge attached to each trade that you make. This can come in the form of a flat fee or what’s known as the “spread.” This is when your broker charges you based on the difference, if any, between the buying and the selling price of an asset.
  • Trading Commissions – This is when a broker will charge you a percentage based on the volume or value of each trade.
  • Inactivity Fees – Any fees that the broker charges you for not trading, such as for keeping money in a brokerage account.
  • Non-Trading/Other Fees – Any form of fee for trading on this platform not covered above. For example, a brokerage might charge you for making deposits into your brokerage account, taking money out of it or signing up for additional services.

When trading currency, it is essential to understand the concept of “pips.” That’s shorthand used by traders in several different financial sectors. A single pip refers to the smallest amount by which prices of an asset can change, regardless of that asset’s class or market. In foreign currency markets, prices are almost always expressed out to four decimal places. This means that a single pip will mean 0.0001 (1/100 of 1%) in whatever unit of currency is being traded. This can also be referred to as one basis point.

Note, however, that a pip does not always have to mean 0.0001. A pip is defined as the smallest unit of change for a given asset regardless of how that unit is measured. If, for some reason, a particular asset were measured in tenths of a cent, then a pip would mean 0.1.

Like many foreign currency trading platforms, FOREX.com charges primarily based on the spread between an asset’s bid and ask prices. This is measured in pips. As a trader, you will pay a per-trade fee based on two factors: the current spread for your chosen currency pair and the account you have signed up for. This can fluctuate widely.

For example, on a standard account FOREX.com charges a minimum spread of 1 pip for any EUR/USD trades. This can fluctuate higher, and is typically closer to 1.5 pips. For the less common NZD/USD pair (New Zealand Dollar/U.S. Dollar), the platform charges a minimum spread of 2.3 pips. On the other hand, a commission account will all but eliminate minimum spreads in exchange for a periodic $5 flat commission.

FOREX.com requires an initial deposit of at least 100 units of your base currency. It charges an inactivity fee of $15 per month if you go 12 months or more without trading, as well as interest on any positions held overnight.

Effectiveness: How Well Does FOREX Work?

Currency exchange pictureFOREX.com offers a generally well designed trading system. Both its desktop and web-based trading platforms allow almost unlimited customization when it comes to building your trading environment. Investors can create their preferred workspace and save it, arranging data, windows, market feeds and any other tools as they like. The platform’s charting offers the same range of options. You can build your pricing and technical analysis data side-by-side or overlaid onto the same chart, integrating other assets as necessary until you have the exact right data set for your needs.

The only real design flaw with FOREX.com’s charting is, if anything, its emphasis on visual customization. The drawing tools are displayed very prominently, while the vast amount of data that investors can use is tucked away in various submenus. The effect is to make the platform’s (genuinely powerful) trading environment feel like the financial equivalent of Microsoft Paint.

There’s nothing wrong with this system. It works well. As an investor you can find the assets you’re looking for, trade them with the push of a few buttons and review your open positions in the same screen. However, these windows tend to take up a little too much space, and the system tends to respond a little too slowly, making the whole thing feel slightly harder to use than equivalent platforms on the market.

As complaints go, this is not a big one, but it’s worth noting.

The Bottom Line

Financial chart in 3-DFOREX.com is a solid choice for investors who want a dedicated foreign currency trading tool. Despite some primarily aesthetic design flaws, this is a data-rich trading platform that will accomplish most of what you need in this unusual space. The overall design and responsiveness of FOREX.com is clunky. Nevertheless, investors who are interested in this asset class should give it a look.

Tips for Investing

  • When it comes to foreign currency, don’t start by sinking your money into the market. Instead the best place to begin is with education. Currencies are their own segment of finance, with its own rules and behavior. Don’t dive in before you understand exactly what that means.
  • Don’t make big moves in your portfolio without getting good advice first. Work with a financial advisor. Finding one doesn’t have to be hard. SmartAsset’s matching tool can connect you with several financial professionals in your area in minutes. If you’re ready, get started now.

Photo credit: ©iStock.com/Blue Planet Studio, ©iStock.com/fatido, ©iStock.com/sankai

Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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