Saving and Investing

The Difference Between Saving and Investing

Saving is parking your money somewhere safe so you can use it later. Investing is risking your money now in the hope it grows over time. Some people try to blur the line between the two, especially when they’re chasing returns but pretending they’re playing it safe. That’s where trouble usually starts.

Saving in a suitably safe way will keep you principal intact. You might also earn some interest, but usually very little, and sometimes not even enough to outpace inflation. A proper savings account is not about growing the capital; it is about having money stored away safely and accessible. Savings are for emergencies and short-term goals, and should not be a risky project.

Investing, on the other hand, puts your money into something that can lose value, e.g. stocks, bonds, ETFs, real estate, or a private businesses. In generally, higher potential profit goes hand in hand with higher risk. Putting your money into a diverse portfolio of blue chip stocks and investment grade government bonds is comparatively low risk, and you can not expect big and quick returns. Investing in a promising start-up might yield a huge profit down the road, but is also very risky.

You Start By Saving

In the rush to start investing, people often forget that savings and proper insurance coverage need to be in place first, to help keep your financial situation stable. Without a solid savings base and good insurance, even a small issue can snowball into something very costly, as you are forced to sell off assets prematurely to pay for emergency expenses or cover income loss.

Before you start investing, you should put an emergency fund together, and keep it in a liquid account. If something happens, you can pull from this money instead of selling off investments or going into debt. Exactly how much you should have in your emergency fund varies, but a common rule-of-thumb is to be able to cover 3 to 6 months of necessary monthly expenses. You should not get into investing if you are still one unexpected household bill away from having to sell off investments prematurely.

Savings accounts aren’t exciting, but they work, especially in countries where a solid governmental bank guarantee protects depositors from bank failures. The goal isn’t to grow your savings, it is to have money stashed away that will protect your from sudden debt and fire sales.

Insurance

As mentioned above, you insurance cover is also something you should take a look at and evaluate before you consider investing. Not having proper insurance can be extremely costly and years of savings and investments can be gone in an instant. Exactly which types of coverage you need will of course depend on your particular household situation, but good points to start looking at are home insurance, health insurance, life insurance (if you have dependents), and vehicle insurance. Maybe some of your insurance coverage need to be improved before you move on to investing?

There are financial products out there that combines insurance with investing. Some of these products are great, but the sector is also rich in rather sketchy or at the very least highly opaque products that are sold to consumers who do not really know how they work. Avoid combination products where you are not sure about points such as exactly where you money goes, where your investments are kept, all the different fees you will be paying, how risky the investments are, and exactly which insurance coverage you and your household will have.

Investing

Once your emergency fund and proper insurance policies are in place, you can start investing.

The basic premise is simple: you dedicate a part of your current income to investments, and they will hopefully grow over time. By investing today instead of spending the money on something you want right now, present you make a small sacrifice today that will hopefully benefit future you.

Examples of investments:

• Publicly traded stocks
• Mutual funds
• Exchange-Traded Funds (ETFs)
• Direct investments in real-estate
• Indirect investments in real-estate through REITs
• Direct investments in non-listed companies
• Precious metals, or instruments that give you exposure to precious metals

Diversification is recommended, since proper diversification make you less reliant on the performance of a single investment. Still, there are many situations in life where it can be really tempting to kick diversification to the curb, e.g. because we really want to sink all our allocated investment capital (and a house mortgage) into a single rental property or into one specific business. Regardless of what you decide when confronted with these decisions, make sure you go in with open eyes, and a clear understanding of what a lack of diversification entails.

Whether it´s through stock dividends, a rising stock market, real-estate appreciation, rental income, business equity or something else, it is often time, not perfect timing, that builds wealth in the long run.

That’s where many people fail. They try to get rich fast and want to skip the basics. It is of course existing to jump in when super sexy investment opportunity appears, and the fear-of-missing-out can be brutal, but if this is your overall investment strategy and not a fringe allocation, the risk is high that you will end up with a depressing result. Long-term investing requires mental separation from short-term market noise.

Building an Investment Portfolio of Financial Instruments

If you want to build an investment portfolio filled with financial instruments, a huge assortment is available. A common choice is to establish a foundation comprised of a mix of stocks and bonds. You can either buy stocks and bonds outright, or obtain indirect exposure through funds that invest in stocks and/or bonds.

If you’re just starting out, index funds are hard to beat, since it is easy to find index funds that are both cheap and diversified. When we say cheap, we mean that the fund fees that you pay will be low. That is because an index fund is designed to track a certain index and does not require much input from the managers. Therefore, passively managed index funds can charge very low fund management fees. If you instead decide to pick actively managed funds that do not track an index, expect to pay considerably more in management fees. Actively managed funds aim to beat the market instead of simply following an index.

Both conventional mutual funds and exchange-traded funds (ETFs) are available as index funds. The main different between conventional mutual funds and ETFs is that an ETF is listed on an exchange (e.g. the New York Stock Exchange) and the shares are traded in a manner similar to stock trading. With an ETF, you can buy and sell shares throughout the entire trading day. With a conventional mutual fund, shares are normally only bought and sold once a day.

An advantage with funds (both conventional mutual funds and ETFs) is that you can gain diversification from day one, even if you only have a small amount of money to invest, provided you pick a diversified fund. If you are building your portfolio from scratch instead, picking each stock and bond yourself, will make it more difficult to attain diversification unless you already have a lot of money to invest when you get started. With funds, you can for instance decide that you want exposure to a particular sector, industry, or geographical market, and pick a fund that is diversified within that scope.

Every Investment Carries Risk

Every investment carries risk. The goal isn’t to avoid risk entirely, it’s to take risks that match your timeline, goals, and personality. Risk needs to be understood, not ignored or romanticized. Also remember that keeping all your money in a bank account is not free from risk either, since the money can lose purchase power over time due to inflation.

You don’t need to bet big to win. Most solid investors build their wealth slowly, over time. They stay in the game, avoid stupid emotion-driven mistakes, and let time do the heavy lifting.

Goals, time-horizon, and risk-willingness

Before buying anything, you need to know three things: how long you’re investing for (time-horizon), what you’re trying to achieve (goal), and how much risk you’re willing to accept (risk-willingness).

If you are investing for retirement, your strategy should ideally shift over time, as you come closer and closer to retirement. Your goal is retirement, but your time-horizon will change each decade, and that should also impact your risk-willingness. What is a great plan for a 25-year-old might be way too risky at 60.Starting early is not just about compound interest, it is also about the kind of risks you can afford to take when the goal is very far into the future.

In Your 20s: Build Healthy Habits

For many, it is not feasible to save and invest a lot in their 20s. A lot of people in their 20s are scraping by on student loans and low-paying entry-level jobs, an either paying high rents or struggling to handle a fresh house mortgage. Some have small kids to raise, while others are doing unpaid internships while juggling three different side gigs.

With that said, your 20s is still a great time to build healthy habits that you can scale later in life, as circumstances allow. Your number one asset here isn’t money, it’s time, and a $100 invested monthly right now can still add up in value over time. For many, our 20s are a time when we transition from barely scraping by (early 20s) to landing a more serious and well-paying job (late 20s), and establishing good financial habits is imperative. It is not just about saving and investing, it is also about being smart with things such as insurance and building a credit score.

In our 20s, we can afford to be a bit risky with our investments, since we hopefully have enough earning years ahead to recover from almost anything short of total disaster. You don’t need to get every thing perfectly right during this stage, you just need to start, stay consistent, and avoid quitting. Focus on building sound habits rather than obsessing over not being able to set aside 20% of your meager monthly income.

Being open to higher risk does not mean being a daredevil with your money. We are not suggesting you push it all into a single sexy Silicon Valley start-up. What we mean is, that it might make sense for you to look at funds that invest in exchange-traded growth stocks, and focus your portfolio on equity rather than bonds. You’re not trying to preserve capital, you’re trying to build it. Do not fall into the trap of playing it too safe. You already are, just by starting early in life.

If you learn discipline and allow saving and investing to become a part of your routine in your 20s, you are setting yourself up for success. Automate deposits and purchases, learn to ignore noise, and stay away from get-rich-quick scheme. What you do here doesn’t just affect your account balance, it might set the tone for how you approach investing for the rest of your life.

You should also stay away from high risk instruments such as binary options unless you can afford to lose the money you risk without a negative impact on your life. Visit BinaryOptions.net to learn more about why binary options are high risk.

In Your 30s: Stack Capital, Simplify Strategy

Your are now in your 30s and, hopefully, this is a part of your life when your income is growing. At the same time, lifestyle creep is brutal. You feel the need to keep up with the Jones’s to project a certain image at the office, you want to move to a good school district, and so on. If you do not keep this reigned in and make smart choices rather than short-term emotion-driven decisions, you investment rate will suffer.

You’ve still got time to take risk, you are not in your 20s anymore, and you need to start looking more seriously at diversification. Do not keep everything in growth stocks. You need to build a portfolio that can take hits and keep going.

With a higher income and more investments to manage, you also need to sit down and make a comprehensive review of your tax situation. This part of investing is not about finding the next Amazon or Bitcoin, it is about making well-informed choices to push down costs that would otherwise erode your capital significantly over time. If available, make sure you take full advantage of tax-advantaged savings and investment accounts, especially if there is also employer matching.

You still go aggressive in your 30s, but with more guardrails. A 90/10 portfolio (90% stocks, 10% bonds) still works here if you can handle the swings. Just know the game isn’t about hitting home runs. It’s about staying in the game long enough to build real wealth.

In Your 40s: Shift From Growth to Balance

Here’s where things get real. You might be earning more than ever, but you might also be balancing a combination of mortgages, kids, education costs for kids, divorce, aging parents, health issues, and a career that’s either peaking or grinding. You can still grow your investments, but now you need a real plan. How much do you actually need to retire? When? What happens if work dries up or you get seriously ill, and you can’t save for a few years?

Asset allocation becomes less about what’s trending and more about what you can depend on. You might start dial back risk by adding bonds, dividend paying blue chip stocks, and defensive sectors, not because you’re scared, but because you’ve got more to lose and less time to recuperate. Risk is still necessary, but it’s got to be measured. At this stage, overconfidence is more dangerous than underperformance.

Make a new assessment of your insurance coverage and adjust as needed. Be smart now. There are policies that you might still be able to qualify for in your 40s and in your current health situation, that will be prohibitively costly and riddled with exceptions if you wait until your 50s or 60s.

In Your 50s and 60s: Protect What You’ve Built

Now you’re playing defense. You don’t stop investing, you just invest differently. Your horizon shortens, and you don’t have 30 years to recover from a drawdown anymore. Preservation becomes a priority, and you might also want to look more closely at income-generating investments that you can get money from in retirement or semi-retirement without having to sell them.

This is when sequence of returns risk starts to really matter, as bad year right before retirement can set you back a decade. That’s why more people move into fixed income, conservative ETFs, or even cash-heavy allocations (especially after 60).

It’s not about being fearful. It’s about control. You want your money to work, but you also want it available. You need income, maybe from dividends or bonds, and a clear plan for how to withdraw without running dry. You’re not chasing high-yield anymore. You’re managing distributions, minimizing taxes, and making sure your assets outlive you. That means less exposure to volatility, more structured withdrawals, and maybe also bringing in a planner or advisor. (Make sure it is an actual advisor, though. Many people calling themselves advisors or planners are actually salespersons and will push whatever products their employer is selling. Your local bank “advisor” will not advise you to invest in anything that is not available through that specific bank.)

Your age doesn’t define your success in investing, but it does define your approach. The best investors adapt over time. They don’t cling to one strategy, but they also know how to stay calm and not overreact to market noise. They stay consistent and adjust the risk, not the commitment to saving and investing.

Trading: An Active Way To Grow Your Bankroll

Not everyone wants to wait 30 years for a portfolio to grow and that’s where trading comes in. Trading is fast and active, and it is definitely now low or even medium risk. While investing is about building wealth over time, trading is about capturing profit from short-term price movements.

• Intraday traders (also known as day traders) open and close positions within the same trading day, never leaving any position open over night. It’s active, intense, and unforgiving if you don’t know what you’re doing. But for people who understand the risks and stay disciplined, it can be a legitimate income stream or growth tool. That said, most novice retail day traders lose money. Day trading demands full attention during the active trading sessions and very tight discipline. A sub-category of intraday trading is scalping, where you will be in and out of trades in seconds or minutes. This is the most intense style: lots of volume, tiny profit margins per trade, and zero room for error or delays. Learn more about intraday trading on Daytrading.com
• Swing traders keep their positions open longer, such as a few days or weeks. They try to capture longer trends, and they have more time available for continued analysis while a position is open. The exact timing of entry and exit is less important, since you are riding longer trends. It is important that you pick a strategy, a broker and an account type where your profits will not be consumed by overnight fees (swap fees). Unlike day trading, swing trading does not require you to stay glued to the screen when you have open positions. It suits people with full-time jobs and other responsibilities who want active exposure but can not give the markets the dedication of a day trader.
• Position traders keep their positions open even longer than swing traders, often several months or even more than a year. The line between position trading and short-term investing can be blurry. This type of strategy is suitable if you want to engage in trading but not worry much about daily and weekly noise. The goal will be to pick trades that will play out well over many months, rather than chase shorter movements.

Why is Trading Popular?

As ten different traders why they do what they do, and you might end up with ten different answers.

For some, the choice to engage in trading instead of just focusing on investing is about speed. They’re not interested in waiting for a 7% annual return when they can capture a 2% move in a single day or week. For others, it’s control. Markets change fast, and trading offers the chance to respond, pivot, and adjust on the fly, rather than parking money in a mutual fund and hope for the best.

There’s also the appeal of independence. No relying on fund managers. No worrying about how the new management team configuration at Sony will impact stock prices in the next year. You make the call, you manage the risk, and you find out the result quickly. Many traders, especially day traders, rely on technical analysis (analyzing historical price data) rather then doing deep dives into company fundamentals (for equity trading) or geopolitics (for forex trading).

Some people with analytical minds are attracted to trading since they get quick feed-back on their analysis. Trading can be a strategy puzzle, a test of execution, and a psychological challenge rolled into one. For people who enjoy decision-making under pressure, it’s more engaging and rewarding than long-term investing.

Note: It is absolutely possible to be both a trader and an investor. You can do both, just not with the same money and the same mindset. Investing is slow, while trading is fast. Keep your investing accounts boring, automated, and long-term. You trade with separate capital: money you can afford to lose. You don’t blend the two, because that is a recipe for disaster.

Day Trading is Demanding and Very High Risk

Day trading has been romanticized in numerous movies and it is also heavily promoted by scores of paid influencers who happily display an (alleged) luxurious lifestyle (allegedly) paid for by day trading profits. This needs to be said plainly: most people should not day trade, and a large percentage of the retail traders who give daytrading a stab end up quickly blowing through their account balance.

Being interested in day trading is not enough. It is not a low-effort get-rich-quick scheme with low-risk and a big upside. You need to know what you are doing, and sticking to a sane risk management routine will require heaps of discipline. Regrettably, many of the people who are sucked in by the glamorous image of day trading are also people who have neither plenty of money they can afford to lose, nor plenty of self-discipline that will keep them on course.

With day trading, there is no “wait it out” like in long-term investing. You’re either right or you’re not, and you find out fast. That’s the price of playing in real time. That doesn’t mean it’s not doable. It just means it’s hard, and pretending it’s not will cost you. There’s no cheat code. No secret strategy that you can buy online for $99. Just thousands of hours of learning about the markets, watching price action, journaling trades, managing risk, and gradually becoming a better trader through hard work and dedication.

Markets to Trade

Trading is less about what’s “hot” right now and more about what you understand. Each market moves differently, follows different rules, and rewards different strategies. Some are fast, some are slow. Some are transparent, others are opaque. The point isn’t to master them all, it’s to pick the one that fits your approach and time commitment.

Forex

The foreign exchange market (forex market) is the biggest financial market in the world, with trillions in daily volume. It runs 24 hours a day, five days a week, and is dominated by institutional flows. The heavy players here are central banks, hedge funds, and international corporations. Retail traders are just a drop in the bucket.

Why trade forex? It’s highly liquid (especially the major pairs) and volatile enough to create opportunities. You can trade major pairs like EUR/USD or USD/JPY with tight spreads and high leverage. Price moves are often technical, which means chart analysis holds weight.

The global forex market is not a chain of exchanges; everything happens over-the-counter (OTC). There is a lack of transparency and the normal trader protection rules imposed by exchanges are not there. The fact that the market is open around the clock for five days means that many traders stretch themselves too thin. You need to have rules in place for when you trade and when you stay away from the screens.

Forex brokers are often very eager to give you enormous leverage, especially for major forex pairs. In many parts of the world, law makers have found it necessary to clap down on this and put in caps for how much leverage a broker is allowed to give a retail trader (non-professional trader). A choice is max 30:1 leverage for major pairs, max 20:1 for minor pairs, and even lower caps for exotic pairs. In jurisdictions where there are no caps, it is not unusual for forex brokers to offer 1:500 or even 1:1000 leverage to retail traders, without any Negative Account Balance Protection.

Forex trading is typically a good choice for individuals who seek odd trading hours, super high liquidity, and significant leverage, while also being disciplined enough to handle all that.

Equity

Equity trading is where many beginners start, especially those how are already familiar with stock investing. The basic idea with the stock market is that you are buying and selling ownership in companies, and this concept something most people already understand.

Fast-paced traders typically focus on exchange-traded companies, also known as public companies. The shares are listed on an exchange, which streamlines the whole trading process and provides certain safeguards for traders and investors. It also limits when you can trade, since each exchange has their own trading hours (plus pre-market and after-hours sessions).

The draw is obvious: there’s endless news flow, earnings, momentum, and volatility, and small caps or heavily shorted stocks can be especially exciting for traders. Day traders gravitate toward high-volume names and many of them try to scalp quick moves. Swing traders ride longer trends, while position traders are more similar to short-term investors in their approach and analysis.

But stock trading is not as simple as just clicking “buy.” Stock prices and trading costs are influenced by things such as market structure, liquidity, and sentiment. You need to manage position sizing and deal with the reality of market halts, gaps, and order routing.

Stock trading is popular among traders who want the added protection of exchanges. If you have already learned fundamental analysis of companies for investment purposes, you have a leg up when it comes to using fundamental analysis for stock trading. Intraday traders often use technical analysis only, but swing traders incorporate fundamental analysis, and for position traders is it really important.

Commodities

You can speculate on commodity prices even if you do not have any crude oil to sell or want to take delivery of 100 bushels of wheat. Commodity prices serve as the underlying for both commodity futures and commodity options, and there are also brokers who offer commodity-based Contracts for Difference (CFDs). If you want a more indirect exposure, you can trade commodity-focused ETFs.

Forex and equities are a more common choice for new retail traders, but commodities definitely have their appeal. Part of this is, of course, their real-world relevance. Just like we live in a world where currency exchange and stock companies help shape our reality, most of us are heavily dependent on commodities such as energy commodities (e.g. crude oil and natural gas), precious metals (e.g. the gold in our computers), non-precious metals (e.g. iron and copper), and all the so-called soft commodities that we eat, drink or wear. The “soft commodities” are agricultural products such as wheat, soybeans, corn, lean hog, coffee, cocoa, and cotton.

Commodity prices can react to a wide range of input, including macro trends, geopolitical events, and seasonal patterns in demand and supply. Each commodity requires its own research and analysis, and it is not easy to jump from one commodity to another as a trader.

Commodity derivatives (e.g. commodity futures) can be highly volatile, especially around applicable economic reports, weather forecasts, and inventory data. Crude oil futures, in particular, sometimes trades with wild swings. Gold futures typically react to interest rates and inflation expectations, but also to general geopolitical worries as gold is considered a safe have investment. Agricultural commodity futures often spike on crop data and adverse weather in the growing regions.

Commodity futures markets can be thin compared to equity index futures, which means higher risk of slippage and the occasional liquidity gap.

For traders who understand supply and demand at a global level, and how can handle the ins and outs of derivatives, commodities offer rich opportunities. Commodities are popular among traders who want exposure beyond tech stocks or currencies, and are prepared to research each commodity individually or stick to only one specific commodity.

Derivatives

Using Options Contracts for Trading

Options trading comes with a lot of extra complexity, but that complexity also opens up for interesting strategies. An options contract is a type of financial derivative that gives the buyer the right, but not the obligation, to buy (if it is a call option) or sell (if it is a put option) the underlying asset at a predetermined price (the strike price) before or on a specific date (expiration date). The underlying asset can for instance be a stock, a commodity, or an ETF share.

Before embarking on options trading, it is very important to understand concepts such as volatility, time decay, and pricing models for options. Instead of simply trying to predict where the underlying asset is going, you also need to take into account how fast it gets there and how likely it is to move at all.

Options offer a type of leverage without requiring margin in the traditional sense, especially for buyers of options. When you buy an options contract, you pay a premium upfront, which is the total cost of the trade. You do not need to borrow money or use a margin account to get exposure to a larger position in the underlying asset. You can for instance control 100 shares with a single contract, often at a fraction of the price, and that’s part of the appeal with options. The flip side is you can be completely right on the direction and still lose money because the stock didn’t move fast enough or the implied volatility collapsed.

Strategies involving options range from simple (buying calls or puts) to complex ( such as spreads, straddles, and iron condors). Options trading is popular among traders who are analytical, strategy-oriented, and comfortable with complexity.

Using Futures Contracts for Trading

Futures are standardized contracts to buy or sell an asset at a future date. Unlike the options contract, the futures contract is binding for both parties. One party is obliged to sell the underlying asset and the other party is obliged to buy the underlying asset.

Speculative traders avoid having to actually buy or sell the underlying asset by not holding the futures contract to expiration. They trade these contracts for profit based on short-term moves and make sure to get out before the contracts expire.

Futures contracts are available for a wide range of underlying assets and product, e.g. stocks, stock indices, commodities, and interest rates. They are highly standardized and traded on exchanges, such as the Intercontinental Exchange (ICE) and the Chicago Board of Trade (CBOT). The appeal is massive leverage, low capital requirements, and high liquidity, especially in contracts like the S&P 500 E-mini (ES), Nasdaq (NQ), crude oil (CL), and treasury yields (ZB, ZN). Futures trade 24/5 on several major exchanges, and most contracts have tight bid-ask spreads and reliable depth.

The volatility cuts both ways and a futures contract can move hundreds of dollars in minutes, which means many retail traders who move into futures trading wipe out their accounts.

Risk management is difficult and you can not just use your normal stock trading routine. Also, since these are leveraged products, margin requirements can change based on market conditions.

Futures are regulated, standardized, transparent, and fast. They are popular among full-time traders who value speed and are willing to pay the fees charged by brokers who provide not only futures trading but also solid execution and support for direct data feeds.

Choosing a Broker for Trading

If you want to get into trading, you need to pick a broker that is well suited for your particular trading strategy. You might already have a broker for your investments, and that broker might also offer trading, but that does not mean that this broker is ideal for your trading needs. An unsuitable broker will frustrate you and can turn an otherwise solid trading strategy into losses.

The right broker isn’t the one with the biggest bonus or the flashiest marketing campaign. It’s the one that fits your strategy and needs. What works for long-term investors doesn’t cut it for active traders (especially not day traders). You can compare brokers and find one that suits you by visiting BrokerListings.

It is also important to know that not every broker gives you access to every market. If you want to trade futures, your broker needs to clear CME contracts. If you’re trading options, they need to support multi-leg strategies and provide solid execution tools. Some brokers don’t offer commodities, international equities, or access to specific exchanges. Check the fine print. Make sure your broker isn’t limiting you to surface-level access or marking up spreads behind the scenes.

Regulation

Make sure the broker is licensed to provide retail brokerage services in your jurisdiction and that your account will be covered by governmental trader/investor protection if the broker becomes insolvent.

If you live in a country where the authorities do no supervise retail brokers or where trader protection is lax, you might be better off with a foreign broker licensed by a strict foreign authority, but this will introduce jurisdictional complexity.

Platform

Your broker is your gateway to the trading platform, so make sure you pick a broker where you like the trading platform and where the platform is suitable for your strategy. Some trading platforms are proprietary and only work with one specific broker, while others have partnerships with a wide range of brokers.

DD Brokers, STP Brokers & ECN Brokers

Dealer Desk brokers (DD Brokers), also known as market makers, are called so because they literally “make the market” for their clients. When you place a trade with a Dealer Desk broker, your order is not passed on to the open market. Instead, the broker takes the opposite side of your trade, acting as the counterparty. This means there is an inherent conflict of interest. If you win, the broker loses, and vice versa. These brokers often offer fixed spreads and can execute trades quickly, but they may re-quote prices, especially in volatile markets. Since they’re managing the risk internally, there’s also an increased risk of price manipulation, especially if the broker is not regulated and supervised by a strict financial authority. Many DD Brokers focus on novice traders, e.g. by allowing small deposits ($10) and facilitating micro-sized trading. Some even have a minimalist proprietary trading platform available where inexperienced traders can get started without having to deal with the complexity of heavy and feature-rich trading platforms.

If you do not like the idea of having your broker as your counterpart in the deals, you can take a look at STP brokers and ECN brokers. Both are less likely to cater to the needs of beginners and micro traders, so expect to make a comparatively large first deposit and use standard lot sizes. The customer support can also be less suited for providing hand-holding to beginners, and the trading platform will be tailored for experienced traders.

STP stands for Straight Through Processing. STP brokers do not take the opposite side of your trades. Instead, they pass your orders directly to external liquidity providers, such as banks or larger brokers. This process is called straight-through processing because the trade flows through the broker to the market without manual intervention. STP brokers typically offer variable spreads, which are more reflective of real market conditions. Some STP brokers may add a small markup to the spread, but they generally don’t charge a commission. As always, it is important to read the fine print. Execution with STP brokers is faster and more transparent than with Dealer Desk brokers.

STP brokers access external liquidity providers, but they typically don’t give access to the full market depth. They route your order to the best available quote from their providers, but you don’t see the full range of bids and offers. If you want to see this, you need an ECN broker instead. ECN brokers operate a more advanced model where they connect traders directly to a network of participants, including banks, hedge funds, and other traders. ECN is short for Electronic Communications Network. In this environment, all orders are matched with other orders on the network, and pricing is based on real-time market depth, which means you can see the best bid and ask prices available. ECN brokers typically offer very tight spreads, often near zero, but they charge a commission per trade. They are known for high transparency and deep liquidity, making them a preferred choice for professional traders and scalpers. However, ECN trading platforms tend to be complex and ECN brokers usually require large deposits.

Fee Structure

It’s not just about spreads and commissions. Look at platform fees, data subscriptions, inactivity fees, withdrawal charges, routing fees, etcetera. It is important that you know exactly what it will cost to implement your particular trading strategy, and your choice of deposit and withdrawal method. Make sure your broker’s fee structure rewards your style instead of punishing it.

Customer Support

We don´t think much about the customer support until a trade doesn’t go through or the platform freezes mid-exit. That’s when we find out whether a broker’s chat window actually connects to a human or loops you through bots and ticket numbers.

When you compare brokers and have narrowed it down to three candidates, explore their customer service. Make a call or use the live chat to ask a few questions that are a bit more complicated than the basics, and see what happens.