Trading forex without a broker acting as an intermediary is possible. Traders can choose from NDD platforms, online P2P platforms, trading physical currency, and transferring money through their bank.
Each of these methods has pros and cons, and that is what we will look at in this article. Along with the information about how to trade forex without a broker, we will give you the following insights:
- The amount of money needed to get started without a broker
- Pros and cons of trading without a broker
- If trading without a forex broker is actually worth it
How to trade forex without a broker
As we’ve briefly discussed above, in this section we will give you some insights on how to trade forex without a broker.
1. Choose an NDD forex trading platform
The best way to trade forex without a broker is to choose an NDD trading platform. This type of platform is the best option for trading in the forex market as it ensures very low costs, transparency and no conflict of interest.
NDD in fact stands for “No Dealing Desk,” and in short it means that all the platform will do is take in your order, process it and redirect it to the players in the global forex market (such as banks, other traders or liquidity providers) without any intervention.
Within this definition fall all platforms that take advantage of similar types of execution such as ECN systems or STP execution.
With this type of execution, NDD platforms do not make money when traders lose money (like Market Maker execution), but through the trading volumes generated by their clients.
In other words, NDD platforms earn a commission when the users trade forex on their platform, and nothing else.
This makes the NDD environment quite transparent, as the platform will have no interest in making its traders lose money, but only in providing them with the best execution possible so as to attract new clients, generate more volume, and thus more revenue for the company.
2. Use P2P currency exchange platforms
P2P platforms operate as virtual money exchanges that also have many bank-style features enabling you to send money all around the world, as well as exchanging it in any other currency.
Some P2P companies that allow exchanging foreign currency are Wise, Frontierpay and Midpoint.
Even though these services may seem convenient for currency trading, they are not if we look at the fees.
A standard forex trading platform charges fees of less than 10$ per every 100’000$ traded, while Wise and others may charge fees of hundreds of USD for a transfer of the same amount.
3. Exchange money across different bank accounts
Most banks allow their customers to have more than one bank account associated with their name.
These bank accounts, if necessary, can also be opened to handle different currencies.
To give a practical example, a customer can open three bank accounts with the same bank, but in three different currencies such as USD, EUR and GBP.
The account holder then can decide for himself to move his funds from one account to another according to the exchange rate.
Generally, banks do not charge fees for money transfers within the bank itself, however, they may charge currency conversion fees.
In addition, banks often charge annual fee-type fees that may be tedious to manage (especially in case you have deposited large amounts with the bank).
4. Exchange money physically
Whenever you travel to a foreign country, you may have to exchange your money to match the currency used in the country you are going to visit.
Whenever you do this, you’re basically trading currencies in the foreign exchange market.
You can physically exchange your money in multiple places such as at the airport or at your own bank, but it’s not quite convenient to do so.
Physical money exchange rates are extremely high, and they are not worth it at all.
What kind of capital do I need to trade forex without a broker?
There is not a minimum amount of money to start trading without a forex broker. However, if you choose an NDD platform, $200 is the suggested amount to get started.
In fact, while every other alternative does not have any requirements, NDD platforms are de facto brokers that do not act as standard brokers.
They require a minimum deposit, they have margin requirements, they do offer leveraged trading, and they charge commissions.
For all these reasons, opening a trading account with an NDD platform requires a higher initial investment compared to other methods.
Trading forex without a broker: why you should be careful
As mentioned, it is indeed possible to trade without a broker. But, if you choose this route for trading there are a few very important things you should be aware of:
At the core of these issues is the high costs of trading without a broker. You will encounter high spreads and double commissions on both buying and selling your currencies without a broker. You may also find that you incur a lot of other fees that can mount up to very large amounts when you are making substantial international transfers. It is also possible for such activity to be flagged by your bank.
The result of having such high costs means that you need to make a lot in profits just to cover your costs. Your break-even point without a forex broker will be much higher and could lead to you taking risks and trading in a manner you may not usually want to in order to cover your costs.
Take the following as a good example:
Using TransferWise is fantastic for sending money cheaply around the world to others. Using it for forex trading though is not a good idea. A $1,000 to Euro transfer attracts a commission of $8.24. This amounts to $824 per standard trading lot. You will also be charged commission again when you transfer it back to USD.
With this same amount using an ECN forex broker, it is likely the spread will be around 0.1 pips only on opening, plus a small commission on opening and closing. It works out to be vastly cheaper as you can see from the table below:
|EUR/USD example||Buy fee (1 lot)||Sell fee (1 lot)||Break-even (1 lot)|
|Average ECN broker||$1 (+$3.5/lot)||$0 (+$3.5/lot)||+$8|
Is it better to trade forex with or without a broker?
Trading forex with a broker gives so many more advantages than trading without one.
If you trade forex with a broker you will get the following perks:
- Low negotiation costs
- Fast order execution
- Free analysis tools
- A dedicated forex trading platform
- Wide number of tradable fx pairs
- Risk Management tools
- Free customer support
Why are costs lower? Forex brokers are large financial institutions in contact with large banks and investment funds across the whole forex market. By being able to generate large volumes, regulated brokers have access to spreads and fast routes that retail forex traders do not have access to. Legit and regulated trading brokers can offer commissions lower than $1 per every $100000 in volume traded.
How faster is the order execution? Forex brokers, depending on their trading execution, can process and execute your trading orders in less than 100ms. This is way faster than any other money transfer done by a bank or any other financial institution.
What kind of analysis tools are offered by the brokers? Forex brokers offer a large number of analysis tools, such as a built-in economic calendar, chart analysis tools, price charts, a news section, and even premium 1-1 meetings with the broker’s forex market analysts for their professional traders.
What kind of trading platform is offered? Forex brokers offer different trading platforms for every need. There are proprietary platforms, third-party platforms such as cTrader, and even copy trading platforms. Without a forex broker, you will not have access to any of these, which will result in a clunky trading experience.
How many tradable fx pairs are there? If you start trading with a broker, you will gain access to a wider range of forex assets thanks to the fact they offer those in CFDs. This means that you can potentially trade any currency in the world, as long as the forex broker gives you the possibility to speculate on their exchange rate. If you trade without a broker, on the other hand, you are limited to the currencies the services actually holds.
What risk management tools do I get? Trading brokers offer their traders a number of tools to manage their risk, including stop loss and take profit orders. This is extremely important to have, especially when trading in the forex market which is quite volatile.
Why is getting support important? The foreign exchange market is extremely volatile, and not being able to buy or sell a currency for technical problems can cause high losses. For this reason, online forex brokers offer a free real time customer support via email, chat and phone, in order to fix any problem their clients’ might have. If you trade forex alone, without an intermediary, you won’t get any help if this happens.
Limitations when trading forex without a broker
If you trade without a forex broker you will face the following limitations:
- No margin trading
- No integrated trading tools
- No free demo account
Margin trading: leverage is not available if you trade forex without a broker. Leverage is in fact a tool that only the largest financial institutions can offer.
Trading tools: if you trade forex without a broker, you will have to rely on third party trading tools such as Tradingview. However, these come with a monthly subscription, while most brokers offer these for free, plus they can integrate them into their own trading platform.
Demo accounts: without a forex broker you will not have access to a demo account, which is a test trading account where you can practice trading with virtual money (and therefore without risk).
Pros and Cons of Trading Forex Without a Broker
Here is an outline of a few of the most important points related to the pros and cons of start trading forex assets without a broker:
|Features||With a broker||Without a broker|
|Spreads and costs||$10 per lot or lowe||$1000 per lot or higher|
|Execution time||Milliseconds||Up to 1 business day|
|Protection||Local and international regulations||Local and international regulations|
|Asset type||Forex & derivatives||Real currency|
|Amount of risk||Risky||Riskier|
What are the tax implications of trading forex without a broker?
Whether you use a broker or trade forex without a broker, the taxes on forex earnings are the same. Tax-wise, there is no difference between trading with a forex broker or without one.
Is it legal to trade forex without a broker?
Trading without a broker is legal, however, attention must be paid to laws regarding cash handling, permitted foreign currecy exchange, and taxes.
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