Forex brokers are often an unknown third party, which assists individuals wishing to trade currencies. For those who are new to forex, however, forex brokers can be an invaluable aid in gaining a foothold in the market. This is because forex exchanges are private markets, unlike the large banks which are more readily accessible and are the usual venue for trading forex.
These brokers are independent entities who do not always disclose their clients’ information or commission charges. They are therefore a valuable asset to those who wish to make a stake in the forex market.
To have an account with a forex brokerage firm is a little bit like opening up a savings account with a bank. It requires legal paperwork and background checks, such as identification verification. The entire procedure usually takes around five days.
But if you are seeking to how to start forex trading, forex brokers usually offer free demo accounts that require minimal information to be provided. This allows one to make informed financial decisions without having to shell out any cash.
One of the distinct advantages of this is that, with the leverage gained, one can use leverage to gain some amount of an advantage over other traders and make money. However, while brokers offer this service for free, they earn through commissions.
They make money from the spread (difference in price between two parties). The spread is commonly referred to as the vig or the price difference, which is widened when traders and institutions place buys and sell orders. Brokers offer better leverage which enables them to offer higher returns.
Some forex brokers however are dedicated to just one thing: currency trading. While some focus on online trading, others provide services to large banks and institutions. The choice between dedicated and non-dedicated brokers should depend on what kind of trading one is interested in.
If the business is only for small-time currency traders looking for leverage, then a non-dedicated forex broker would be the right option. However, for larger companies and individuals who are looking for bigger returns, then it would be more convenient and practical to go for a dedicated broker.
Brokers can also be classified as unregulated or regulated. Regulations govern how brokers make money through the most important piece of the trading pie is still up to the trader themselves. Brokers work within limits set by the government.
They are subject to strict regulations such as the minimum deposit to open an account and to participate in the trading spread which is determined by regulated bodies such as the Commodity Futures Trading Commission (CFTC).
CFTC regulates the forex industry and the margin requirements for a trading account, though some state that they have no control over these.
This is to cover the costs incurred during the start-up phase. The minimum deposit for opening a trading account is higher at some brokers than others. Some require higher amounts with fluctuating rates of return.
A Guide to Choosing the Right FX Broker
Online Forex brokers provide traders and investors with an interface to use for executing trades in the Forex market. Most such websites provide tools that enable the user to analyze trends in the market. The tools are designed to simplify and streamline the process of analyzing market data and making trading decisions. Here we look at the pros and cons of choosing a specific Forex broker.
When it comes to Forex trading there are many options available, but each has its pros and cons. Some traders and investors would rather not deal with Forex brokers, while others find that brokers ease their work and make currency exchange transactions much easier.
It is important to know what kind of trader or investor you are, and what kind of trader or investor you intend to be, before deciding to go ahead and deal with FX brokers. Here is a list of some of the pros and cons of different types of Forex brokers available:
Demo Accounts Broker Typically, online Forex brokers provide a free demo account for prospective clients. This will enable you to test out their automated trading platform without risking actual funds.
However, since all trades are executed on your demo account, there is no way to evaluate how effective the broker’s real-time trading is. You should therefore look for a free demo account that works similar to the real thing, and you should always be prepared to test the system yourself.
Flexibility While most FX brokers offer standard trading platforms, some provide the flexibility to customize your software and settings to meet your specific needs. The main advantage of using such a forex broker is that you will be able to set your limits and trade at your own pace. Some also allow traders to test their strategies before using them in live markets.
Leverage Most experienced Forex traders use higher levels of leverage, up to even 100 times of leverage. This means that any profits made are quickly lost as prices rise, and this principle applies to all currency pairs. However, many new traders stick to smaller currency pairs, as they cannot obtain such high levels of leverage.
This is where Forex brokers allow traders to adopt a more conservative trading style. They make trades with smaller leverage, and as a result, they can more easily observe market trends and make appropriate trades without the risk of financial loss.
Reputation The reputation of any FX broker depends on his experience and track record. Look for a broker who has been trading in the forex market for several years, who has achieved a high number of successful trades, and who is willing to provide information on his previous trades.
You will also want a broker who is transparent about fees, has good customer support, and a quick, easy interface. The best forex brokers are honest, diligent professionals who are willing to help you build a profitable career. By choosing the right broker, you will ensure that you enjoy excellent currency trading opportunities.