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I still remember the first time I invested in the stock market, I was in my 20s and wanted to buy shares, I had no idea how to go about it.
I ended up going into a traditional bank branch, registered for their online broker.
What was the result?
I was charged a lot of commissions and ended up buying the wrong shares. I also failed at considering the timing of my investments, the risks, and portfolio diversification – I learned my lesson!
So, you can avoid this type of failure, I’ve created this guide to the best online broker for beginners, and I’ll reveal their pros, cons and commissions.
Be warned, this is going to be a long guide, so if you just want to know which brokers to use when, I’ll summarise it for you. Take a look at DEGIRO if you want to invest in stocks or ETFs and you live in an EU country or the UK. Interactive Brokers or eToro are also a good option for ETFs and stocks outside Europe (e.g. USA or Australia).
For traders who want a fast platform on which to trade derivatives (e.g. CDF), I would suggest taking a look at XTB and eToro if you are based in Europe or the UK, or IG and Interactive Brokers for US-based customers.
If you want something in between where you can trade derivatives (e.g. CFDs), and real stocks, Interactive Brokers and eToro are good options.
Let’s get down to business and help you find the broker that best suits your investment style.
Table of Content
Overview of the Best Brokers for Beginners
In the following table you can find the best brokers that you can use for the different assets you trade, and also in which countries each operates.
This is an independent person or organisation that arranges the various transactions between buyers and sellers in any sector. In our case, the broker organises the trading (buying and selling) of financial assets.
If you want to buy (or sell) certain financial assets (e.g. Apple shares), the broker will find someone to participate in that trade, and sell (or buy) those Apple shares – sometimes, as with XTB or eToro, you will trade with the broker itself, these are called market makers.
As you can imagine, brokers don’t work for the fun of it, and therefore, in one way or another, they charge a commission (or a spread). More on the commissions below.
There are many things to consider when choosing the broker that suits you best (e.g. the markets in which it operates or the products it offers). Keep the basic idea of what a broker (financial intermediary) is, and if you are interested, I will expand on this later.
Why Do I Need A Broker?
Good question!
To be able to trade (e.g. on the stock exchange), you will need a financial asset trading platform (broker), if you don’t have one it’ll be impossible to buy or sell financial assets.
For example, imagine you are lucky enough to get a $500 refund on your tax return, and you decide to invest that $500 in shares (e.g. in Intel).
How do you go about investing that money in Intel?
You could try going door-to-door in your neighbourhood and ask your neighbours if they own Intel shares, and if they are willing to sell them at a reasonable price.
That’s right, you can’t do that.
Brokers willhelp you find other investors who are willing to trade (sell or buy assets) with you, or sometimes they will do the trading themselves.
Most people who need potatoes don’t go to the farmer to buy them. Nor cabbages, eggs, or lettuce. Doing the shopping would be impossible, that’s why we go to the supermarket. Brokers are something similar.
The Best Online Brokers For Beginners
Here is a list of the TOP brokers presently, so you can get an idea of the state of the market, and what to expect from them.
Keep in mind that brokers tend to specialise, and not all of them are adequate options for all profiles. In general, brokers that offer good options for derivative products (e.g. CFDs), are not usually as good options for buying and selling real financial assets (not derivatives) such as shares or ETFs.
eToro
eToro is a popular market maker, founded in 2007 (under a different name, RetailFX) in Israel. It currently has offices in the UK, US, Australia and Cyprus.
They seem to have an unlimited marketing budget, they have hired film and TV stars like Kristian Nairn (Hodor in GoT) or Alec Baldwin. In addition, they have a lot of online ads (e.g. on YouTube) and millions of users.
In addition to derivatives trading, they have added the ability to trade real stocks (not CFDs), so it’s starting to become an even more comprehensive tool suitable for more types of investors.
What I like about eToro:
It’s regulated by organisations in serious countries such as Cyprus, the US or the United Kingdom
It’s an intuitive platform with a good smartphone app. Furthermore, it also has a demo account that you can use to practice
Invest by following and “copying” other investors – in case you want “inspiration” for your investments
It’s possible to trade a huge number of asset classes (fractional shares (bits of shares), fractional ETFs, cryptos, CFDs (derivatives), etc
You can decide whether to invest without leverage, which some similar market makers don’t allow (e.g. XTB)
What they should improve:
Highish initial deposit, you will not be able to add less than [sc name="etoro-min-deposit"][/sc]
Commission for withdrawals in some cases
It doesn’t have a news feed to help you to stay on top of your investments
Spreads could be a bit lower
Who should use eToro?
Buying fractional shares and ETFs may be a good option for those willing to buy and hold real assets. It’s definitely an option to consider for traders who want to invest cheaply and without much complication using CFDs (or real stocks). Beginners have the option to copy other traders in real time, but please make sure you study and understand the risks before you start trading.
68% of small retail investors lose money when trading CFDs with eToro. You should consider if you can afford to take this higher of losing your money.
DEGIRO
DEGIRO is without doubt an extremely popular broker in Europe, founded in 2013 and based in the Netherlands / Germany, it has been gaining popularity and currently serves well over 2 million clients in 18 different countries (mostly in Europe).
It has very competitive fees, and it allows you to trade online in many markets (e.g. United States, United Kingdom, Germany, France, Spain, Australia, Japan, etc). You can choose to trade with or without leverage, and they have a promotion where you can trade some ETFs once a month with no commissions (you have to invest at least $/£/€1,000).
What I like about DEGIRO:
Opening an account with DEGIRO is effortless, and its platform is user-friendly.
DEGIRO is based in the Netherlands (an EU country) and is controlled by the Netherlands Authority for the Financial Markets, and registered with the UK FCA too.
There is a wide variety of securities that you can trade. Among others: stocks, ETFs, bonds, options and futures from markets such as the US, major European countries, Asia (e.g. Hong Kong, Singapore, Tokyo) and Australia.
What they should improve:
It’s not possible to trade some assets such as CFDs, Forex or Cryptocurrencies.
There is no demo account for you to practice with, but opening a regular account is free of charge. Of course, you can’t practice as you would with virtual funds.
Unfortunately, DEGIRO is unavailable to clients from outside the UK and major EU countries. You will not be able to trade with DEGIRO if you are US-based, in Japan, Singapore, Australia, etc
Who should use DEGIRO?
DEGIRO seems to me to be a good platform for beginners and experienced traders, as it’s a simple platform, but at the same time it has several order types (e.g. stop loss) and research options that advanced users will appreciate. It also has a variety of markets and products. But sadly, it’s not the best alternative for trading derivatives.
It’s a US group that has been operating in the financial sector for more than 40 years and has beyond one million customers.
It has an official presence in several countries such as the United States, Luxembourg, the United Kingdom, Canada and Japan, and is therefore supervised by many institutional bodies in serious countries.
What I like about Interactive Brokers:
It’s available in many countries, including the US, Canada, UK, Japan, Australia, Brazil or many European countries such as Spain, Italy, Germany, France, etc.
Trades a multitude of products such as stocks, ETFs, mutual funds, bonds, currencies, and derivatives such as CFDs and futures
It’s possible to trade in many markets (135) and countries. There are 23 currencies available on its platform
What they should improve:
The application isn’t the easiest to use, and opening an account can be complex
As their platform is somewhat more complex, their commission system isn’t the easiest to understand
To access all the platform’s features, you have to download software. There is a web and mobile version, but it lacks some of the features that the desktop version has
Who should use Interactive Brokers?
Interactive Brokers is a good choice both for experienced investors who want to trade (e.g. derivatives trading is possible) and for those who want to trade stocks, ETFs, funds or fixed income assets.
XTB
XTB is another of the most popular market makers where you can trade derivatives (such as CFDs). It has more than 15 years of experience, was founded in Poland in 2002, and operates in 13 countries (including the UK, Germany, France, Italy, France and Spain).
With this market maker, it’s possible to trade CFDs on shares, ETFs, indices, Forex or even commodities. It also allows trading, in some countries, with real shares and ETFs. It has offices, among other countries, in the United Kingdom, Spain, Germany and France.
What I like about XTB:
Registered with the UK FCA and other regulatory bodies in, among others, Spain, France, Germany and Portugal
Opening an account is easy. There is also a demo account where you can test the platform with fictitious money
You can quickly add funds by credit and debit card, bank transfer, Skrill, PayPal and other e-wallets
Spreads seem to be among the tightest in CFD trading
What they should improve:
Minimum deposit of $/£/€250
Unfortunately, trading in real stocks and ETFs isn’t possible for all clients. For example, clients from Spain, France, Italy or Germany can trade real assets, but users from the UK cannot.
It’s not possible to trade derivatives without leverage, but it’s possible to trade stocks and ETFs without it
Not suitable for clients outside Europe, UK and LatAm such as the US, Canada or Australia
Who should use XTB?
XTB is for serious traders working with derivatives, please note that you have to put in at least [sc name="xtb-min-deposit"][/sc] to get started.
Founded in 1974, and with more than 170,000 clients worldwide, the IG broker is one of the most popular brokers in the world. It has offices in countries such as the United Kingdom, Germany, the United States, France, Japan, Singapore and Spain.
It’s a market maker focused on CFDs with more than 17,000 assets (CFDs) that you can trade. I have to say that there are others that have more products in their portfolio (e.g. XTB, or eToro).
What I like about IG Broker:
Large broker (more than 200,000 users) with a long tradition in the financial world
IG doesn’t impose a minimum deposit when opening an account
Intuitive and with lots of charts and analysis that you can use
Comes with a demo account, so you can practice and test your brokerage
Available in many countries such as the USA, UK, Japan, Singapore, Spain, France, Germany, France, Holland or Italy
What they should improve:
It has an inactivity fee if you don’t trade for 2 years
It’s an investment platform designed for traders who want to trade derivatives, it’s not a good option for trading stocks and other real products
It has many account types and each with different spread levels and features, it can be confusing to know which one to choose
The spreads they charge are not the cheapest at the moment
Who should use IG Broker?
Definitely another broker for intraday traders who need advanced features (e.g. charting), and order types that suit what they are looking for (e.g. stop-loss). If you have no trading knowledge, I would suggest you look for another alternative with which to trade real assets such as stocks, ETFs, funds or bonds.
AvaTrade
AvaTrade is a derivatives broker that has been operating since 2006, and has managed to gain 300,000 clients who trust them to invest their money.
With AvaTrade you can trade various types of CFDs such as stocks, currencies, ETFs, cryptocurrencies, indices and commodities. But it’s not possible to buy and sell underlying assets such as stocks, ETFs or fixed income.
What I like about AvaTrade:
Opening an account with AvaTrade is 100% online and fast
The spreads on their CFDs appear to be tight
They have a trading calculator that will help you understand how much you will pay in commissions on each trade
It’s a broker that is regulated in many serious countries such as the UK, Ireland, Australia, Japan and South Africa
What they should improve:
It doesn’t have the widest choice of markets and instruments for CFD trading
It’s not available for countries such as the United States or Canada
AvaTrade is only able to trade derivatives
Its charting system could be more comprehensive
AvaTrade charges a very high inactivity fee
Who should use AvaTrade?
Well, it’s a good option for those looking for a broker to trade CFDs, but it must be said that they don’t have the widest range of markets and instruments – e.g. eToro and XTB offer more.
IC Markets is an online forex and CFD broker based in Sydney, it was founded in 2007. This CFD-based broker offers over 2200 CFD assets, including stocks, currency pairs, indices, commodities, and cryptocurrencies. You’ll need to use MetaTrader or cTrader to use it, as IC Markets doesn’t have its own trading platform.
What I like about IC Markets:
IC Markets is a widely available broker, serving clients from many countries within and outside the European Union, including the United Kingdom, Australia, Germany, France, LatAm, and others
IC Markets is regulated by various countries including the United Kingdom, Australia, and the European Union and others
IC Markets makes it easy to open a demo account, they are also flebible
Trading options include social trading via Zulu Trade and algorithmic trading using programming
This broker supports multiple currencies, including USD, EUR, AUD, JPY, and GBP
What they should improve:
Since users can only invest in CFD, it won’t cut it for those looking to invest in real stocks, ETFs, bonds and so on
Its interface, including MetaTrader 4 5 and cTrader, is extremely outdated, surely won’t be getting any design award
This trading platform offers a limited range of instruments compared to other platforms
Security options for accounts could be a bit more rounded. For instance, it doesn’t come with a 2-factor authentication, and passwords and usernames for the trading accounts are sent to your email
Who should use IC Markets?
IC Markets may be better suited for experienced traders rather than beginners. It’s also not a broker for long-term investors, as it’s a CFD broker. It also comes with a steep learning curve.
IQ Option is undoubtedly another of the big names in online brokers, with more than 7 million users and an average of more than 20,000 trades per day. It operates in 31 countries, including the UK, Germany, France, Italy, Portugal or Spain.
It’s a Cyprus-based broker, so the CySEC (Cyprus Securities and Exchange Commission) regulates its operations. In addition, they are also registered with, among others, the British FCA, the Spanish CNMV, the Italian Consob and the French Regafi.
What I like about IQ Options:
Professional platform with many options for charting and analysis
It’s possible to invest economically (using derivative products) in many financial markets (e.g. stock exchange, Forex, cryptocurrencies, etc.)
Regulated by many countries
What they should improve:
IQ Option will not allow you to trade without leverage
It’s only possible to trade derivatives (with CFDs), this isn’t ideal for beginners or investors than don’t understand its risks
Too few markets and assets compared to other trading platforms
Its web platform is a bit slow
Not available for US, Australian or Israeli clients
Who should use IQ Option?
It’s a platform suitable for experienced short-term investors looking for a quick and cheap way to invest (in derivatives). Similar to IC Markets.
Many classifications can be made between the different brokers, but traditionally, we can classify them all into 2 categories to simplify things.
Market Makers
As the name suggests, they create their own market on which their clients (investors) will trade. Therefore, trades never reach the interbank markets as the orders are executed in their system, they set the price considering the supply and demand of their clients.
The market maker (broker) will be the one you trade with, so when you put in an order they have to take the opposite position. When you buy they have to sell and when you sell they have to buy.
Market makers (usually) don’t charge trading commissions, as they make money from the spread between the bid price and the ask price they set.
Example: Imagine you want to buy Apple shares at the (imaginary) broker MarketMaker Inc. and the broker will offer a bid price (for the client) of $117.66 and an ask price (for the client) of $117.70. This $0.04 is the spread and what the broker will make money on – as well as charging for many other services.
You are probably familiar with IG Broker IQ Option, XTB or eToro, surely these are the most popular market makers right now.
Advantages of market makers:
They offer liquidity, as you can buy or sell at any time
Market makers’ trading platforms are usually easy to use and free to use, although they tend to have inactivity commissions
They don’t often require a lot of capital to start investing
Costs are lower and trading is faster than with brokers that don’t act as market makers. This makes them ideal for derivatives traders
Disadvantages of market makers:
They may have conflicts of interest, as they can make money if their users lose because they are the counterparty to your trades
They usually deal in derivative products which are riskier (than e.g. equities), and more difficult to understand. Not suitable for inexperienced investors
They fix the bid and ask price to benefit from the spread. In rare products (if few brokers offer them), the spread can be large and be costly in terms of profitability
Many of these market makers force you to trade with leverage (such as borrowing money from the broker to trade)
There are many users who believe that (all) market makers operate against you and manipulate their platform to cheat their users. It’s true that there may be some market makers that take advantage, but the reality is that most investors lose money on their own, without the market maker having to do anything ‘against’ them.
Many of the most popular and long-established brokers are market makers, and if they were to scam their users, no one would use them. As a general rule, always use brokers that are regulated by serious countries (e.g. members of the European Union, Japan, the United States, or countries that you trust in general).
STPs and ECNs (No Money Desk)
These types of brokers connect buyers and sellers, so that financial assets can be bought and sold.
You will not buy (or sell) the asset from them directly, these brokers only put you in contact with other investors (or liquidity providers such as investment banks). In other words, they are not your trading counterpart, they only enable two individuals to meet and trade an asset.
Advantages:
They give access directly to the market, so the price of the assets can be the closest to the real price
Unlike market makers, there can be no conflict of interest, as you don’t trade with them, but they facilitate the trades
With this type of broker it’s more common to be able to trade real assets and not derivatives
Generally speaking, you can trade without being forced to use leverage
Disadvantages:
The commissions they charge may be somewhat higher as this is their main source of income
They may have limits on the minimum invested capital you need to access their platform
Liquidity isn’t always the highest as they have to wait for someone looking to buy and someone looking to sell
Things To Consider When Choosing A Broker
Let me tell you about the main aspects you should consider before deciding on a platform.
Commissions
Brokers’ commissions for providing services are certainly a point to be considered. The most common commissions are:
Annual commissions: Few brokers charge an annual fee for having an account with them, but there are some
Inactivity commissions: Sometimes, if investors don’t trade for a certain period of time (e.g. a quarter), a commission is charged
Trading commissions: When trading securities (e.g. buying or selling shares), the broker will charge you a commission. Note that sometimes (e.g. with market makers) they don’t charge a commission, it’s a spread between the bid and ask price
Foreign exchange commissions: When trading in currencies other than the one you have set up in your broker account (e.g. buying shares that are quoted in Japanese yuan), you will have to pay a foreign exchange commission
Funding commissions: If you ask for money to trade or don’t add funds when your account is negative, the broker will charge you a commission for lending you that money. Beware that they are daily and can add up to quite a lot
Leverage
Some investors (e.g. day traders), use leverage to invest more than the amount they deposit with the broker.
For example, you invest $10,000 in Forex, but you only have to have $1,000 margin (funds deposited) at the broker. This does NOT mean that you only risk $1,000, your investment (and its risk) will be for the $10,000, although you only need $1,000 to open that position.
Be aware that this is a dangerous thing to do if you don’t understand it, and if the market moves against you, you will have to put more money in to compensate for the margin. If you don’t add the funds on time you will have commissions for financing (it’s as if the broker lends you money, and they charge you interest for it).
Ease of Use
An important factor is to use a trading platform that you find easy to use, and that suits what you are looking for.
A good option is always to take a look at the demo account, if they have one. This is a version where you can trade with fictitious money, not so exciting, but a good way to learn without risking your capital.
Security and Accounts
Broker security is a somewhat controversial subject, and it’s very difficult to know whether a broker is secure or not. I usually look at a couple of things:
Are they based/regulated by a serious country? For example, are they a broker based in a distant country with little regulation, or are they in a state with financial legislation and control (e.g. USA, EU, Japan, Australia, etc.)?
Are they a listed company? This isn’t a 100% guarantee of anything, but if a broker is listed in a stock exchange, they will have to make their accounts public and will have to pass an audit; this should give some extra reassurance to users.
Graphics and Analysis Tools
Many advanced users, including traders, want a tool that allows them to draw charts, make chart projections and apply calculations. Take a look at the platform you are considering to make sure it has everything you are looking for in a broker.
Charting Tools
Another important aspect is whether they have good tutorials on their platform, having a broker that can do a lot of things without guides to explain how isn’t very useful.
Order Executions
Brokers have several options for investors when it comes to executing orders, so you don’t have to keep an eye on the stock market at all times to see when you enter and when you exit.
The most typical orders are:
Market: This is the quickest way to tell the broker to buy or sell an asset.
Limit: These are orders where the investor determines the price he is willing to pay. If the broker finds a bid at that price, the order will be executed.
Stop Loss and Stop Profit: This is the minimum price (Stop Loss) and maximum price (Stop Profit) at which an order is processed to protect against market fluctuations. For example, if you have a Stop Loss order of $99 on Apple shares, your broker would automatically sell your Apple shares if the price dropped to that level – Stop Profit works in a similar way.
Dynamic Stop: The sell level of your order is moved if the market goes in your favour. In other words, the price of your stop loss is calculated by considering the evolution of the asset’s price.
Please note that order prices are often not guaranteed. For example, in periods of high volatility the broker may be unable to fill your order at the price you have set, and will fill it at the next available price.
Deposits And Withdrawals
Finally, you will need to be clear about which methods your chosen broker allows you to add funds to your account and withdraw them.
It’s usual to withdraw funds using the same payment method (e.g. bank transfer) that you used to add the funds – for security reasons, I guess.
The most typical methods are: charge your card, bank transfer, or electronic payment methods such as PayPal or Skrill.
On the other hand, you need to consider how quickly these funds are added. For example, if you are in the red at your broker you will be charged commissions, to avoid this you should use the fastest method of depositing money – adding funds by PayPal or card is usually faster than by bank transfer.
Available Markets
It’s essential that the broker you choose operates in the markets you want to invest in. For example, if you are going to focus on buying US stocks and the broker you choose doesn’t operate in this market, or has little asset selection, it’ll be a poor choice.
In general, most brokers will allow you to buy the major assets of the most important markets. For example, stocks from the S&P 500, European or Asian markets.
On the other hand, if you want to invest in something very peculiar like certain ETFs or shares of certain unpopular companies, you may have to do some research to find the broker that suits you best.
You can think of a financial market as any forum where buyers and sellers trade assets. As we will see below, there are dozens of asset classes (e.g. stocks, bonds, currencies or derivatives).
An example of this:
In my city, Barcelona, every weekend, card fans get together to buy, sell and exchange cards. There are different types of collectors, some like Pokemon cards, others like Football cards, and others Harry Potter cards.
But of course, Barcelona isn’t the only place in the world where these transactions take place. For example, if you live in Manhattan, London, Rome, Berlin or Paris, you can certainly find local places where you can exchange stickers.
A financial market is something similar.
Main Financial Markets
There are many types of financial markets, depending on the type of asset being traded. But the most important are:
Money market: Where money and other short-term assets are exchanged. It’s a wholesale market where institutions and investors with a lot of capital trade. It’s characterised by very high liquidity.
Capital markets: The objective of these is to raise money for companies by issuing shares and debt (medium and long term), the risk is higher. Within this, we can find fixed income (e.g. shares) and equities (e.g. bonds).
Foreign exchange market (Forex): This is the market in which participants trade currencies; for example, you have euros and want to buy dollars.
Government bond markets: This is the place in which governments (and other public entities) go to in order to obtain financing. In this market investors can obtain public debt (fixed income), they lend the money to a State that will return it after the term and with agreed interest (or conditions).
Financial derivatives market: These are markets where complex financial products (derivatives) are traded. These products don’t have a value in themselves, but depend on other assets. For example, we can have a derivative product (CFD) on Tesla shares, the price of this CFD will depend on the price of Tesla shares, but it’s not Tesla shares – more about these products in a few paragraphs.
Bear in mind that the more regulated a market is, the safer it should be and the fewer problems (illegalities or amoralities) small investors who participate in it’ll have to face. But be careful, these risks don’t entirely disappear no matter how regulated the market is.
For example, the cryptocurrency market is currently unregulated. That is why there seems to be a riskier market.
Which Broker Should I Choose For Each Situation?
All right, let me tell you about a couple of cases, and which broker I would choose.
The most complete: It’s a bit difficult, as there is no broker that specialises in all of them, I would probably say DEGIRO, Interactive Brokers or eToro if you are going to trade real assets and derivatives.
Most competitive commissions: For derivatives XTB and Interactive Brokers, and for assets like stocks and ETFs DEGIRO.
For beginners: I would definitely not recommend any broker with which you cannot trade without leverage and which trades derivatives exclusively. DEGIRO, Interactive Brokers or eToro are my favourite choice here.
For Traders: If you are a thrill-seeker and want to get into trading, there are several worthy options: XTB, AvaTrade or eToro.
For cryptocurrencies: If you have a cryptocurrency wallet, I would suggest you take a look at eToro. Please be aware of the risks of investing in cryptocurrencies.
For investment funds: Interactive Brokers would be my choice if you are looking for a broker for investment funds. DEGIRO if you are located in Europe and investing in ETFs.
For stocks: DEGIRO is my choice for stocks (when located in Europe), they have a lot of markets and good commissions. Interactive Brokers is a good choice for the US.
Financial Products Available
There are plenty of financial products to invest in, here are a few to give you an idea of which ones are most suitable for you.
All these financial assets can be divided into fixed income and equity products.
Fixed Income
Fixed income financial assets are those that pay you a known interest over the life of the asset. In other words, investors know how much they will earn on these assets.
Generally, this type of asset is lower risk than equities, they are often a good choice for investors seeking security (e.g. older investors who want to avoid the volatility of the markets).
It is worth mentioning that the fact that they are less risky than equity products doesn’t mean that they are risk-free.
Among others, there is the risk of default (e.g. the entity goes bankrupt before the term expires), liquidity risk (e.g. the person who has to pay back the loan doesn’t have cash at that moment) or the risk that the interest rate rises and you stop earning money with other operations.
There are a lot of fixed income products, but we can divide them into two main blocks:
Public Fixed Income
We lend money to a public entity such as the government of a country or a region. The most typical are Treasury Bills and Government Bonds.
This type of fixed income investment is considered to be safer than private fixed income investment, as governments are supposed to be safer than companies.
Private Fixed Income
The concept is similar, but instead of lending money to a public body (e.g. state) you lend it to a private organisation.
Keep in mind that if you invest in debt (private or public) in a currency other than your own, you will face exchange rate risk. In other words, if you invest in US Federal Reserve Bonds and the euro rises against the dollar, the value of your investment will fall if your main currency are euros.
There are several ways to invest in fixed income. For example, you could buy government bonds online. But personally, I think using a broker like DEGIRO or eToro and buying government bond ETFs is a simpler option.
Please note: Other typical fixed income products are bank deposits and savings accounts, but currently the interest rate they offer is minimal.
Equities
With this type of investment the return isn’t known, it can even be negative, and you could lose your entire investment (e.g. you bought shares in the Blockbuster video store chain).
The risk is significantly higher than with fixed income investments, but you have to consider that there are a lot of equity products and some have more risk than others (e.g. derivative products such as CFDs).
Let me mention the most popular assets:
Shares
They are probably the most popular equity asset. By buying shares the investor becomes the owner of a company, this ownership will be proportional to the number of shares held.
Shopify share price
The shareholder can achieve profitability (profit) in two ways:
With the dividends that the company may distribute to the owners if it makes a profit.
The difference between the cost per share at the time of purchase, and the price at which we can sell that share after a period of time. So if we buy Google (Alphabet) shares at $1,000 and sell them at $1,050, we will have earned $50.
To invest in stocks I would suggest you take a look at DEGIRO, Interactive Brokers or eToro, it’s a broker with interesting commissions and access to thousands of stocks and markets.
Forex
The foreign exchange market is the largest financial market in the world, where billions of euros are exchanged every day. For example, from dollars to euros or from pounds to Mexican pesos.
It’s a crucial market for sustaining the economy and involves governments (e.g. to buy products from other countries), companies (e.g. to invest in other countries) and investors.
CFD Forex Trading at eToro
In the case of investors, the objective is to speculate and increase the value of their investment with the fluctuation of currency prices. For example, buying $10,000 dollars in the hope that the value of the dollar will rise and then exchanging it into EUR or GBP will result in a profit.
This is a market where you typically trade with leverage (debt). This means that you don’t have to pay out the full amount you invest, but only part of it. Be aware that this can lead to losses greater than the amount you have paid out if, for example, the market moves in the opposite direction to the one you have invested.
Investors usually trade on a very short-term basis, so they use market makers such as XTB or eToro, for trading Forex with CFDs.
It’s a very risky type of investment, so I would only recommend it to professionals or experienced investors. You won’t see me gambling my money on Forex, I don’t have the necessary experience and I can’t spend all day in front of the broker to see when I should get in and when I should get out.
Cryptocurrencies
Cryptocurrencies such as Bitcoin, Ethereum or Litecoin are digital currencies in which it’s also possible to invest. In fact, some of these (e.g. Bitcoin) are in the financial news all the time.
The idea for the investor is similar to Forex, you buy cryptocurrencies in the hope that they will rise in value and you can sell them later. Keep in mind that the volatility of these is extremely high, and there is (at the moment) little regulation, so I would suggest that you don’t invest in these unless you know what you are doing.
Derivatives
These are complex (and risky) financial products, which have no value of their own, as they are dependent on other assets (underlying asset). The underlying asset can be in many forms: equities, bonds, interest rates or market indices (e.g. the S&P 500, etc.).
You can understand it as an agreement between two parties on a commodity (e.g. stocks, commodities, bonds, etc.). The value of this agreement will depend on the price of the derivative asset.
There are several popular derivative assets, e.g. futures, options, swaps or contracts for difference (CFDs).
I am not covering all the derivatives as this article would be too long, but I would like to tell you what a CFD is, as many brokers (market makers) used by traders use this type of asset, some examples are XTB, eToro or AvaTrade.
Contract For Difference
Imagine that I believe that the value of oil will go up in a few months, and you believe that it’ll go down. We can agree to sign a Contract for Difference (CFD) that reflects the price of oil.
If the value of oil goes up, this is good news for me, as I will be able to sell the CFD for more money than it cost me. Conversely, if the price goes down, you will make a profit if you decide to sell. And all this without you or me buying an oil barrel.
Note that with most trading platforms you don’t need to pay out the full amount you are going to invest, you just need to invest “cash” on margin; this technique (leverage) is used to be able to invest more with less capital. But beware that this has a lot of risk, leverage can multiply your losses if the market moves against you.
Why some investors use CFDs to invest:
It’s possible to invest in assets without buying them. For example, you don’t have to buy barrels of oil, stocks or government bonds.
It’s possible to make a return when the price of the asset goes up (trading long), and when it goes down (trading short or against an asset).
As it’s not necessary to provide all the capital for the investment, but only part of it, it’s possible to invest larger amounts – be aware that this is very risky.
The cost of trading CFDs is very low, which means that you will have lower commissions.
But as you can imagine it has some drawbacks:
CFDs are complex concepts, which makes them not suitable for inexperienced investors.
The effect of leverage (investing for more money than you pay out) can have dire consequences if the market moves against you.
You may incur financing costs if you don’t add funds to cover potential losses if the market moves against you.
When operating with leverage, brokers will charge a financing fee for the money they lend you.
Mutual Funds
This is a collective investment whereby a group of individuals (or institutions) invest large sums of money in a variety of assets. Stocks and bonds are the most common assets in which they invest, but not the only ones.
When you take a stake in a mutual fund, you buy a fraction of that fund, and by extension the assets it holds.
It’s impossible to categorise mutual funds into fixed income or equity products. Some funds invest exclusively in equities (e.g. S&P500 stocks), while others invest exclusively in bonds (e.g. European or Asian debt). In addition, some mutual funds invest in both types of products (bonds and equities) to diversify the investment.
They are a great way to invest without a lot of knowledge, especially if you don’t need the money for several years and can let your investment grow. But be careful, not all mutual funds are good options, you’ll need to do your due diligence.
Fondos indexados de Vanguard
What Types Of Assets Should I Invest In?
Well, I invest (almost) exclusively in index products, which are assets that invest only in financial indices such as the Dow Jones, IBEX 35 or the S&P 500.
After reading the book The Little Book of Common Sense Investing by John C. Bogle, I understood that most of the time indexed products (they invest in the whole market instead of selecting a few assets from the market):
improve the performance of managed funds over the long term (there are dozens of studies on this)
have much lower operating costs (less commission for you)
are highly diversified as they invest in the whole market (less risk for you)
And how can you invest in index products?
You can use a broker such as Interactive Brokers or DEGIRO to select the index funds you want to invest in. This requires some time to choose the fund and do the rebalancing you need to do.
You can use a roboadvisor, which is a simpler way to invest. The commissions are a bit higher but you don’t have to worry about anything.
Final Thoughts On The Best Brokers
All right, I hope this guide has helped you decide what type of broker you need, and that you have been able to assess the different alternatives available in the market.
Before I finish, I would like to remind you of a couple of basics when it comes to choosing your option:
If you are a short-term investor (e.g. a day trader),a market maker that trades derivatives (e.g. CFDs) is probably the best fit for you. It will save you commissions and transactions will be faster. Take a look at brokers such as eToro or XTB. Keep in mind that this type of investment is even riskier than trading more classical assets such as stocks and mutual funds.
If you are more focused on the medium and long term, I would definitely say that derivatives (e.g. CFDs) will not be your best tool as they are too complex. I wouldn’t invest with a market maker either. I would first take a look at options such as DEGIRO or Interactive Brokers.
I say goodbye by reminding you that investing always involves risks, and by giving you a basic piece of advice. Don’t invest your money in things you don’t understand. And if you have any questions, feel free to leave a comment below, I’ll try to help.
Frequently Asked Questions
What Is the Difference Between A Broker and A Trader?
A trader can be understood as the person who invests in the financial markets (i.e. an investor), while the broker is just the agent (or platform) that brings investors together to facilitate the trading of assets.
Does My Broker Play Against Me?
Basically, no. It’s true that with market makers (e.g. eToro, XTB and similar brokers), as the investment platform has to play the other role in your investment (if you buy they sell and if you sell they buy), they may make more profit if you lose money.
But if they manipulated the accounts or played against you, investors would stop using them. That said, the conflict of interest could exist.
Do I Really Need A Broker?
If you want to invest in the stock market and choose the assets you want to invest in, yes; you will need a platform (broker) that allows you to make those investments.
If all this seems too complicated for you, you can take a look at other types of investment platforms that are easier to use, such as roboadvisors.
Updates
27 Feb. 2023 – Updated DEGIRO’s information.
01 Feb. 2023 – Extended IC Markets information.
26 Jan. 2023 – Added IC Markets to the list
13 Jan. 2023 – General update
27 Feb. 2022 – eToro updates
10 Jul. 2021 – Moved from upgrowthwise.com to upskillwise.com
26 Apr. 2021 – Affiliate disclosure added
05 Apr. 2021 – First version
Josep Garcia
I am Josep Garcia, I live and work in Barcelona. I have a fulfilling 9 to 5 job as a digital marketer, but I also have several side gigs I enjoy working on. When I decided to launch my own website (in 2016) I took on the challenge of learning how to program, as I wanted my site coded from scratch. I have to say that finding online educational resources (I used Lynda at the time) was a blessing.
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It’s a market maker focused on CFDs with more than 17,000 assets (CFDs) that you can trade. I have to say that there are others that have more products in their portfolio (e.g. XTB, or eToro).
