For the longest time now, people have been skeptical about the Forex market. Most people didn’t believe that it was real. With time, however, the trade has become more popular as more and more people join in. Currently, the forex industry has a daily turnover of above $5 trillion. It is increasingly becoming one of the leading and the most liquid markets in the financial world. One of the reasons why the Forex market has gained popularity in the recent years is because of the Forex brokers.
Who are they?
Forex brokers are usually firms which provide the currency traders with a platform where they can buy and sell currencies. As it is, these Forex brokers are usually known as retail Forex brokers. They only control just a very small portion of the larger Forex market. Most of these brokers provide a 24-hour market. Most of these brokers provide trade for the major world currency pairs which are GBP/USD, EUR/USD, AUD/USD, EUR/GBP, USD/CHF and lastly, USD/JPY. A Forex broker makes it possible for an individual trader to access the market. Below are some of the roles of a Forex trader:
- Link between trader and market
By definition, a Forex broker is an entity that connects a retail foreign exchange trader and the foreign exchange market. The broker provides the retail trader access to the Forex market. The reasoning behind this is that retail traders usually hold very small proportions of the larger Forex market. It would, therefore, be practically impossible for them to trade as individuals together with the larger players in the market. As such, Forex brokers come in to bridge this gap that exists. They provide a platform through which the retail Forex traders can take part in the Forex trade.
- Educating a trader
Other than acting as a link between the trader and the market, most Forex brokers provide education to the trader. In most of the online Forex brokers’ platform, there is a lot of information on how and when to trade in order to maximize your profits. This information provides invaluable help to those who are new to forex trading. It helps them learn a great deal of information that would have been otherwise hard to gather without the platform. Again, most of the brokers will provide the retail traders with a demo account where they can practice how to trade. This is usually a great way to start trading. It offers the traders a chance to learn how to trade without actually having to commit their money.
Also Read: Most Trusted Forex Broker
- Trading on behalf of the trader
In some instances, there are those brokers who offer to trade on behalf of the trader. What happens is that a broker helps the retail Forex trader link up with some of the major players in the foreign exchange market. Through this link, every time these players are trading, a given percentage of the retail traders’ money is also invested. From the proceeds of the trade, the retail trader will get a given proportion of the profit after the player takes their cut. The beauty about his is that in increases the chances of a retail player making a profit as these traders have perfected the art of trading and will probably make better judgments regarding a trade as compared to the retail trader.
This is just one of the types of methods that the broker may offer to the retail trader. There are also other ways through which a retail Forex trader is able to make profits in the foreign exchange markets without actually having to make the trade themselves. Another one that is quite popular today is the use of the trading robots. These robots usually execute trades on behalf of the user.
How it works
To really understand the role of a Forex broker, it is important to understand how the Forex brokerage works. Basically, retail Forex traders are usually individuals who want to trade in Forex. The first step is opening an account on the broker’s platform. The retail trader usually makes their trades from this account. After opening the account, one will be required to make the initial deposit for them to start trading. For the newbie’s, most platforms offer a demo account where one is able to practice trading with virtual money. The minimum deposit varies from one trader to the other with some being as low as $10.
Also Read: $50 Free No-Deposit Bonus Forex 2018
When it comes to the actual trading, it is usually done in currency pairs, for instance, EUR/USD. One can either buy or sell the pairs to make a profit. For instance, buying the pair EUR/USD, to make a return, the Euro must become more valuable to the dollar. This means that you will need to buy low and sell high. Thus, you buy when the price is lowest and sell when the price is highest.
Foreign exchange brokers make their money by taking a small proportion from your trade. The relationship of the currency pairs is measured through pips. The broker will charge you several pips before the trade is executed. For instance, the EUR/USD pair may be trading at 1.202 as the buying price. When entering the trade, the broker can put you in at 1.204. If you immediately close the deal, the broker collects the difference between what you paid and the market price. This is usually referred to as the spread. What this means is that the broker will always make profit provided that a trade is executed, whether the trader wins or losses.
The above are some of the roles of a Forex broker and how the foreign exchange brokerage works. It is worth noting that Forex brokers are not the same. Thus, when choosing a broker, it is highly recommended that you take your time and study them. Read reviews about them online to see how most traders feel about them. A good broker is one who has the interest of the trader at heart. There are a lot of issues that may possibly arise when money is involved. It is, therefore important to choose a broker with efficient dispute resolution ability. A good broker is the one who quickly and conclusively handles all your issues.
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