A Forex broker is dealt with a company that provides financial services and provides a platform for the traders using which they can conduct their operation such as buying and selling financial instruments. Forex is a transaction platform for the financial currencies based on the pair. An FX broker is also known as the currency trade broker who can also provide financial services for the investment banks.
The role of the brokers
FX foreign exchange occurs mostly among the G10 nations, and their currency includes USD, EUR, GBP, JPY, AUD, NZD, CAD, CHF etc. Customers can use the other currencies too and using a broker, an investor buys a currency pair and closes the trade after selling the same pair. When businessmen sell a pair, it is equivalent to buying euros with dollars. When the exchange rate is higher after closing the trade, the trader gets an amount of profit. On the other hand, if the exchange rate is lower, then the investor makes a loss.
Forex account opening
Opening an FX account is very easy these days, but during that time, an investor needs a broker as collateral to deposit money in his new account. Investors also get the leverage facility using a broker so that they can trade using a larger amount of money than that they have already deposited. Based on the rules and regulations of each country, a businessman can take 40 to 400 times leverage facility from a broker in their trading account. Beginners should be careful in this case because sometimes high leverage facility can prove as very risky and newbies can lose their money.
Some of you might be looking to deal with the futures market. They should pick brokers like Saxo as their prime broker. Choosing the wrong broker can ruin the performance and make the trading business really tough. So, be selective with your trading approach.
How brokers make money
Brokers make money in two ways, and those are by the bid-ask spread of the currencies and by taking the service charges from the clients. In the first example, using the spread they can make money when the Dollar price can be 1.20010 bid, and 1.20022 ask and the spread we find between these two prices can be .00012 which is also known as 1.2 in pips. FX broker gets this spread amount when the retail client opens and closes the financial instruments based on that certain amount.
In a second way, few brokers take additional fees as service charges providing access to special financial products with outstanding options. Few brokers earn money through their own business operations, and sometimes these types of practices create a bad reputation among the customers as rules or regulations are not ensured in these cases.
Regulation
Brokers are generally regulated by the Commodity Futures Trading Commission and with the National Futures Association which controls them utilizing necessary law and regulation to save the investors from potentially fraudulent activities. To attract retail customers, firms are reducing their fees as competition is huge among the brokers. Due to intense competition, many of the firms are now offering the services with a very small amount of fees besides the spread. Newbies can research about the brokers using NFA’s website and based on the clients’ review.
To the bottom line, we can say that Forex brokers work so efficiently to perform the trading activities for their clients. They play a significant role to get a better trading experience, and newbies can achieve the easiest leverage facilities out there to boost their profit margin in the lowest deposit. An honest broker always helps his customers by providing the best services in the market and ensures his professionalism in the business. Though there so many risks dealt with FX it is the brokers who work day and night to run the wheel of the market for their respected traders.