One question that often pops up with many traders in forex and other markets is that of, is it possible to trade forex without a broker?
There are several reasons why you may ask this question, and here we will take a look in more detail at the answer and your available options. In fact, it is possible. Possible but not advised. This is largely due to the high fees associated with not using a broker.
Another reason you may ask this question is if you are unhappy with your broker. You don’t need to worry, just take a look at our top 10 forex brokers. Here you will surely find a top-rated broker to trade with.
If you are still interested in trading without a broker though, keep reading for more information on this possibility.
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Is it possible to trade forex without a broker?
Let’s first take a closer look at the question itself. Is it possible to trade forex without a broker?
Trading forex without a broker is possible through P2P currency exchange platforms like TransferWise, or using other money exchange locations online or in person. Compared to trading with a forex broker, the spreads are much higher with these services. The trading is also not done in real-time which makes it impossible to day trade.
Three ways to Trade Forex without a broker
Here we can look at the three ways you have available to trade forex without a broker in more detail. You will also see that they share two similar drawbacks in that they have very high fees, and the transactions are very slow to execute.
1. Investing huge amounts of money in a Bank
The first option you have is to trade between two accounts if you hold them in different currencies with your bank. For example, if you held one Euro account, and one USD account at your bank you could transfer back and forth to exploit rate differences.
You will find the fees are likely lowest with this method, and you may qualify for some other kinds of discount if you are moving large amounts of money. With that said, the fees are still higher with this method than using a top forex broker.
2. Go to a physical money exchange
In fact, you engage in forex trading every time you take a holiday or visit a currency exchange at the airport or in another country to change your money. Trading at these kinds of locations though often carries very high commissions along with large spreads making it quite impractical and expensive for larger or more frequent forex trading.
3. Use P2P currency exchange platforms
There are a few options here when it comes to using a P2P currency exchange platform. These include TransferWise, Frontierpay, Midpoint, and others.
They operate as virtual money exchanges that also have many bank-style features enabling you to send money all around the world. While fees here are low in terms of sending money, and it is convenient for daily transfer needs, they are still expensive options for forex trading.
ECN/STP Brokers: Trading forex with a broker, but WITHOUT the broker
The perfect solution for many traders who are concerned about being on the opposite side of the broker, or the forex broker trading against you in some way, is to deal with an ECN/STP broker.
They are unique in that they do not act as a counterpart to your trade like a market maker. With an ECN/STP broker, there is no incentive to them in regards to whether your trade is successful or not. This type of broker simply connects you and your order through the network to execute your trades as directly as possible.
For this service, all they charge is a spread that can often start very low from 0 pips and a commission. This commission typically starts from $4 per lot traded ($100,000) with the best brokers.
Overall then, ECN/STP brokers allow you to retain the benefits of having a broker and the infrastructure access this can provide, but without trading against them at all as you would a market maker.
If this sounds like a good idea to you then be sure to check out our top ecn forex brokers list for more information and some great brokers.
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 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)||+$8|
Limitations when trading forex without a broker
Besides the huge difference in cost, there are a few other limitations you should be aware of.
Instead of executing trades in fractions of a second as you can do with the best forex brokers, completing trades will take minutes or even hours. This makes it impractical and basically impossible to perform any kind of efficient day trading and certainly rules out scalping.
The only real practical trading method without a broker is to buy huge sums of a high-interest currency that you intend to keep for a long time. This also carries many risks of its own depending on the currency and requires detailed forex trading knowledge.
Pros and Cons of Trading Forex Without a Broker
Here is an outline of a few of the most important points related to the pros and cons of trading forex with no broker:
|With a Broker||Without a broker|
|Spreads and costs||10$ per lot or lower||$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|
How can forex brokers keep costs this low?
With all the talk of cost, you may wonder how it is possible for forex brokers to keep costs low.
Forex brokers are very large financial institutions with a lot of capital circulating through them. This allows them to offer the best rates the more money they move. A non-brokerage relies only on individual transactions while a broker has access to much stronger connections, liquidity providers, and high volume traders.
So, which is the best broker to trade forex with?
When it comes to the best forex broker, that choice is not so simple to make. Of course each broker has its own pros and cons that you will need to consider. With that said though, even the worst forex broker will offer better trading conditions than any P2P service for trading forex.
If you are really concerned about it and want to make sure that the broker is absolutely on your side and not trading against you at all, then we have put together this listing of 10 trusted forex brokers that also work with ECN/STP execution-style to provide the best trading environment for you.
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