Forex trading in Germany is legal, and the local regulator puts no roadblocks in the way of this exciting trading medium. If you are interested in learning how to start trading currency pairs, you are in the right place. However, forex trading is high risk, and a good deal of preparation is warranted.
We will explain to you the benefits of forex trading, how the activity is regulated, and how you can get started in five easy steps. We will also help you find a trustworthy forex broker, which will give you access to this highly volatile and exciting trading market.
Why Trade Forex in Germany?
Germany has consistently had the largest economy in Europe since the 1980s, even before reunification. Well-known for its excellence in engineering, particularly luxury vehicles, Germany’s GDP is $3.8tn in 2022. In the spring of 2010, it was Germany that led Europe in bailing out the failing Greek economy, and it has come to the aid of its neighbours more than once. The recent historic and economic impact that this country has had on global events cannot be overlooked.
In the world of forex trading, Germany is a leader with an estimated active trading base of some 150,000+ individuals or roughly two people out of every 1,000 of the local population of 83 million. Germany has always been a major exporter of products in international trade and has been the economic backbone of the European Economic Area (EEA). It follows that local citizens would have an interest in how the euro stacks up against other foreign currency pairs.
Europe and Germany also fell victim to the ill effects of the COVID-19 pandemic. Economic output declined significantly across the continent, but Germany fared better than its economic peers in the region. Compared to the US market pullback, Germany was but 1% behind the US, but France, Italy, Great Britain and Spain as a group averaged more than 6% down from US standards. Post-pandemic, the German economy is expected to rebound from a GDP of $4.3tn in 2021 to $6.3tn in 2030.
With such economic projections paving the way for a thriving middle class, it is no wonder that forex brokers the world over market their services to German residents. Germans have the freedom to choose whatever broker they wish, but the regulatory regimes in both Europe as a whole and Germany have instituted strict policies to protect consumers from fraudulent purveyors in the industry. Leverage and bonuses are limited or prohibited. It is easy to be tempted by a foreign-based broker’s offering of better deals. Proceed with caution.
Forex traders in Germany have learned that there are several benefits that apply to trading currency pairs. The ‘top six’ benefits are listed below:
- Market Size: A survey of the forex market in 2019 determined that daily turnover was in excess of $6.6tn. The retail forex trading component of that figure is small, but the market is not subject to the price manipulation whims of major players, unlike the cryptocurrency market.
- Market Liquidity: A large market ensures that liquidity is high. Bid/Ask spreads tend to be tight for the major pairs, thereby making it easy to open and close positions as expected. To get the best pricing, learn to trade when major market centres are open or overlap.
- Market Hours: The forex market runs from early Monday through late afternoon Friday. You can choose your best time for trading as convenience is ever present.
- Product Offerings: Major currency pairs, minor currency pairs and even some exotics may be traded, depending on the product offering of your chosen broker. There are also many alternative ways to trade, whether in the traditional sense or with CFDs, options, copy trading or buying shares in a managed pool of foreign currencies.
- Leverage: Forex brokers allow you to expand your position in the market with leverage. The service is free, except that the spread is computed on the larger position. Leverage is a double-edged sword – it can magnify gains, but also losses.
- Opportunities for Profit: The size and number of currency pairs also ensure that there will always be good opportunities for trading. Do not fret if you feel that a good one passed you by – another trade setup is waiting just around the bend.
Who Regulates Forex Trading in Germany?
The local regulator in Germany is the Federal Financial Supervisory Authority or Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). BaFin has specified a minimum level of financial and capital standards that forex brokers must comply with in order to obtain local licences to market their services to German citizens. Brokers may also solicit Germans without this authorisation as long as they are licensed and permitted by the Markets in Financial Instruments Directive (MiFID) pertaining to other jurisdictions in the European Economic Area.
It is also important to note that BaFin follows the directives of the European Securities and Markets Authority (ESMA). Marketing practices of forex brokers have been curbed, and leverage levels for major currency pairs are held at 30:1 and 20:1 for minor pairings. These regulatory agencies work in tandem to protect German citizens from fraudulent bad actors in the forex industry. Although choosing an unregulated forex broker from a foreign jurisdiction is not prohibited, it is highly ill advised by these agencies. Be wary of foreign solicitations.
A Step-By-Step Guide to Trading Forex in Germany
The keys to success in forex trading are preparation and blocking your emotions from interfering in your decision-making. Forextraders can help you with the first part. You will find many instructive articles on this website to get you started. Blocking your emotions, however, comes with approaching the market in a disciplined fashion with a step-by-step trading plan. Use a broker’s practice demo to develop, test and fine-tune your strategy. Veterans attribute their success to many hours spent in practice mode. The first step is to choose a broker.
- Choose a Broker: For a beginner, finding a trustworthy and reputable forex broker can be an overwhelming task, but it need not be. Forextraders has already canvassed the brokerage community to find only the best to choose from in the list provided below. Each of these brokers complies with a major regulator and has established a reputation for being one of the best. Start with this list and find the best forex broker in Germany that offers the products and features that you want and a trading platform that feels comfortable for you.
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- Open and Fund an Account: Practice on a demo system to finalise your selection, and then follow the sign-up process on the broker’s website. International law mandates that every forex broker receives personal identity documentation from you in order to proceed. Approvals can come quickly, but occasionally another day or two may be needed to verify your credentials. Funding follows. Start small at first and choose a payment method that works best for you and your bank.
- Make Your First Trade: After a good deal of practice trading and perfecting your selected trading strategy, you might be ready to make your first trade. There are several trading strategies that can be appropriate for a beginner. Simple moving-average crossovers are one, but we can help you discover more ways to trade using technical indicators. It is best to start with small trade amounts and then work your way up.
- Manage Your Risk: Do not forget to manage your risk so that you may trade another day, even if you have a string of losing trades. Practice these principles on your demo system. They will help you evaluate the risk/reward potential of a position, determine the size of your position, and protect you from volatile reversals in the market.
- Enjoy Your Profits: Now it’s time for the fun part – enjoying your profits! Every trader, however, must also learn to accept losses and to learn from them. There is a psychology that applies to the art of trading. Your emotions will attempt to undermine your best-laid strategy by holding onto a losing position. Buying is the easy part. Closing a trade is where the tough decision resides. Practice your step-by-step trading plan until it is routine, and allow it to guide you in this turbulent marketplace.
Forex trading in Germany is legal, popular and growing. Veteran forex traders in this country have learned to attack the fickle forex market in a disciplined fashion, work only with a major regulated broker, and develop and perfect a series of trading strategies, each designed for different market conditions.
Forextraders is here to help you get started, initially with your preparation phase, then to selecting a reliable broker, and finally to placing your first trade in this market. Practice as much as you can. There are no shortcuts. Invest the time upfront, and you will enjoy more profits down the line.
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