What Is the Role of a Forex Broker

The currency exchange market is the largest and most dynamic market in the world-nearly 2 trillion U.S. dollars is traded daily. If you'd like to get into online trading or foreign exchange trading, you will need to get the services of a forex broker. A forex broker is a firm or an individual that works as the intermediary between the buyer and seller. The currency exchange market is similar to equity markets, except the average forex broker will not charge a commission. Forex brokers earn money from the pip, or the spread, which is the difference between the rates at which a particular currency is bought and sold. The spread is the smallest increment of a currency. For instance, in Euro-US dollar currency exchange, a move from .9007 to .9008 is one pip.

Forex brokers are usually associated to lending institutions or large banks because of the large amounts of money traded in the currency exchange market. Recently, however, there has been an increase in online forex brokers, who assist in online trading and offer their facilities to traders using the Internet and other technologies. With the help of online forex brokers, anyone with a laptop, computer, or an Internet connection can get into online trading and participate in the foreign exchange market. Whether they work for a lending institution or online, all forex brokers must have a license and should be a registered member of the Futures Commission Merchant.

There are many kinds of forex brokers you can consult. A full service broker can provide you with standard services like price quotes and investment advice. They will also keep you updated on the trends of foreign exchange trading. You can also consult a discount broker if you want to have more control over the buying and selling decisions. Finally, introductory forex brokers will help you deal with commodities and futures contracts.

Before choosing a forex broker to consult, consider the following:

  1. Reputation. Check the record of the broker and see if they are consistent. The reputation of the broker will tell you which ones are experienced and which ones make money.
  2. Regulation. You can examine a broker's profiles by checking with the Commodity Futures Trading Commission or the Futures Commission Merchant. You can also ask the broker if he or she is a member of the National Futures Association.
  3. Software. Good currency trading software should be easy to use. If this is your first time to deal with currency exchange, the forex broker should let you use a demo account so you can see if the currency trading software works before you do your first trade.
  4. Reasonable initial deposit. An initial deposit is paid to the broker in case they do not receive payment during the period of investment. An ideal initial deposit should not exceed $500.
  5. Customer support. Foreign exchange trading needs to be done in real time. You need to have a broker you can contact anytime you want. The forex trader should have a customer service desk that will respond intelligently to any questions you might have.


Share this article!

Follow us!

Find more helpful articles: