What are Forex Brokers?

What are Forex Brokers?

A forex broker can have many different meanings within the Foreign Exchange Trading markets, especially in the street jargon. At its basic meaning, a broker is the person or entity that stands between the trader (you) and the market. It is the entity / platform, where you will post your wanted transaction and it will be executed in the market. In the days we live almost all Forex Brokers have an online platform where you see the prices and decide what you will buy or sell. On this platform you provide the broker – through the platform – with your transaction (buy or sell) and the broker will execute it in the market meaning go to the market, find what you want to buy/sell and execute the transaction for you. Bear in mind that the foreign exchange market is what we call OTC (over the counter), so there is no formal exchange center like in the case of shares, but all interested parties that buy or sell currencies make up the market.

Thus for the retail customer a forex broker can be considered as his/her entry point to the foreign exchange market. A forex broker in this case can be an entity that provides you with an online platform or telephone access to market data and transaction execution. Your broker will execute your transactions on time (high importance), the broker will hold your trading capital (high importance) for you to be able to trade, the broker will provide you through their platform with real time prices (high importance) for you to make accurate decisions, but also the broker will train you to use their platform and trade on the forex markets, provide you with analyses/expectations of the trading item you choose and also assist you in all forex trading needs you might have.

What are the differences between Forex Brokers?

The differences between the various forex brokers are many and should be reviewed before choosing the forex broker you will trust with your money and use their platform to enter the forex market. Below is a non-extensive list of differences that will be analyzed in more details in separate articles.

* Attachment to a leading financial institution. Some of the forex broker are attached or even are subsidiaries of a large financial institution (I.e. dbfx.com attached to deutsche bank). This should provide you more comfort due to the fact that they are expected to be more professional, have more financial support and also much less risk of being a fraudster.
* Regulated by a Financial Regulator in a country, which and for how long. Most forex broker nowadays are regulated by some authority in their country of registration (United States NFA, UK FSA, CY CYSEC etc)
* Platform used by the forex broker. There are various platforms that forex brokers use with their pros and cons (web based, downloadable, mobile phone etc)
* Type of account and technical details. Different brokers have different type of accounts in size, lots of trade, commission received, leverage, rollover interest policy and other technical’s that will increase or decrease your risk and cost management for each trade.
* Level of information and service: Each forex broker provides their clients with different level of analytical information and service. Some have online chat sessions, answer emails and phones immediately, provide their customers with deep and accurate information/predictions, watch the trades of their customers and intervene when needed. Some brokers provide advanced information, as charts and analyses for free, some other provide it as a premium service
* Last but not least – does the forex broker suit your need? Do you feel comfortable with the platform, at the same time with their customer service, the information and training they provide, their payment in and out policies, as well as your cost of trading. Does it all make you feel comfortable? Its important



What do you have to look out for?

When choosing a forex broker you should look out for all the differences described above. First you need to estimate the trustworthiness of the forex broker to hold your money, as a second you need to review their platform and technical’s with regards to risk management of your trade, as well as costs of trading, then you need to evaluate the level of information they provide you with and the personal service that they offer to their customers. In order to help you with the choice we reviewed the biggest forex brokers and provide you the information in a separate table (Forex Broker Comparison Chart).

Additionally many forex brokers to lure clients into their platform offer certain offers for example free trading cash with the first deposit. This should not be given high importance since it is just a marketing trick, but who wouldn’t like some more cash to trade with. And at the end of the day, no one is forcing you to trade with just one online broker, or to stay with one that does not suit your needs.

How do Forex Brokers make their money?

Forex brokers claim that they make their money due to the buy/sell commission they receive in the form of spread. Spread is the difference between the buy and sell price and can very between brokers and between currency pairs. This is true for a large percentage of the income of broker and for a large percentage of forex brokers, but it is not absolute and should be taken for granted. When you open a position in the market you basically open a position with the broker and the broker in his turn, if he just wants to be a broker and profit from the spread will transfer your position in the market automatically. According to this theory, the forex broker will profit significantly from the amount and volumes you trade. Thus this forex broker will want you to win more money from the market and continue trading at large volumes to increase their profits.

There are some cases of brokers though that when the client opens a position on their platform – they maintain the position and thus become the market for the client. In this case when your position is closed at a loss, the amount of money lost will be a profit for the broker. These kinds of brokers are more dangerous to the client, since it is not their benefit to provide your winning tips and information. It is very difficult to know this information from outside, but bearing this in mind you will understand on the way, whether the broker is acting like a real broker wanting you to win and increase your volumes or whether they acting like a casino wanting you to lose to their benefit.

What you should know?

As a newbie in the forex trading market you should know that you are about to enter the most risky and at the same time most fascinating financial trading market in the globe. Before you do that though and before you risk you money on it, you should treat it with care. Choose a forex broker with valid information and not based on marketing material. Train yourself in risk management first and then in trading for profit. It is more important to realize and calculate, how much you can lose, than how much you would win. Keep in mind that trading is by a large factor a psychological game. Study the psychological site of trading and keep it in mind to decide when you are ready for the first jump. And also don’t be in a rush. There is no one pushing to start trading real money tomorrow – other than maybe the marketing executive of the broker you just signed up for the demo account, but they are doing this to increase their personal budget for holidays, while your hard earned money is lost, from excessively fast decisions.