What is the Role of a Forex Broker?

Eugene Hill

If you are planning to join the Forex market, the best thing you should do is to find a good Forex broker that can provide easy access to the market. Forex, short-term for foreign exchange, involves the buying and selling of two different currencies.

What is a Forex Broker

The Forex market is open 24 hours a day, 5 days a week. Forex brokers have clients that include retail currency traders or those traders who were not able to provide a huge amount of deposit to start trading. Moreover, forex brokerages also have clients from huge financial firms that are trading on behalf of other customers or investment banks. If you are engaged with an individual broker, then they are only capable of handling a small volume of currency exchange in the market.

Understanding the Role of a Forex Broker

Some of the most traded currencies are the U.S. Dollar (USD), Euro (EUR), Swiss Franc (CHF), Pound Sterling (GBP), Canadian Dollar (CAD), Japanese Yen (JPY), New Zealand Dollar (NZD), and Australian Dollar (AUD). Although these currencies are the most traded ones, there are still brokers who allow you to trade currencies from emerging markets.

With the help of a currency broker, a trader can open a trade when he starts to buy a currency pair and closes the position when the currency is sold. For instance, a trader can exchange euros for U.S dollars. This is possible when the trader buys euros with the use of U.S. dollars. For it to be closed, the trader needs to sell the pair which is equal to purchasing the U.S dollar with euros.

How to Open a Forex Account?

It is very easy to open a Forex account nowadays thanks to the help of reliable Forex brokerages. Before the trading begins, the broker will ask you to deposit a certain amount in your trading account which will serve as the collateral.

Leverage is also offered to customers and this is helpful because you get to trade with a larger amount than your deposit. The leverage ratio depends on the country where the trader is situated, the leverage range from 30 to 400 times. But when using leverage, you must be wary because too much leverage incurs more risks. As they say, it is a double-bladed sword. You get twice the profit and twice the chances of losses as well.

How Do Forex Brokers Generate An Income?

There are two ways that a Forex broker get compensated. The first one is by the bid-ask spread and the next one is through additional fees paid to them. In this case, you must make sure that you know the fees and charges that your broker might deduct into your account. Also, you have to make sure that the broker is legitimate and they are governed by regulatory bodies that handle these kinds of activities. Scams are rampant nowadays. If you get scammed, you may think that Forex trading is bogus when in fact, it is the broker that’s unregulated and possesses more risk.