Definition of ‘Forex Brokers’
Forex brokers, also known as currency trading brokers, or retail forex brokers are firms that provide investors with access to a platform where they can buy and sell foreign currencies. In modern financial trading, they act as an intermediary agent who buys and sells financial assets to receive commission. Forex brokers usually handle an extremely small portion of the overall global foreign exchange market.
In the modern era, brokers have been controlling common markets including equities, insurance, commodities, real estate and even derivatives. However, with the advancement of technology in the internet age, many brokers have embraced this progress to allow their clients access trading accounts through computer applications and other electronic platforms.
Understanding ‘Forex Brokers’
Traditionally, forex trading was done by interbank markets by relatively large client such as banks, multinational corporations, importers and exporters who traded for commercial purposes. In the 1990’s, More developments in the foreign exchange market led to the rise of retail forex, the key concept behind forex brokers. Retail forex allows smaller and individual traders to invest in forex through dealers. Internet-based financial trading opened doors for small traders who could not invest in a market previously limited to financial institutions and large businesses.
Retail forex brokers allow customers to open an account, deposit money and trade with a wide range of assets through an online-based trading platform. Forex brokers allow their clients to trade using all major currency pairs such as GBP/USD, EUR/USD, USD/CHF and USD/JPY. Additionally, most brokers allow their customers trade all emerging market currencies. Since most small traders can only risk a significantly small part of their initial capital, forex brokers allow them trade in larger amounts as compared to their deposits. This is made possible through the concept of leverage, which allows customers trade with up to fifty times their principal.
In addition to buying and selling financial assets, forex brokers also offer related services such as asset price charts, trainer programs and advice, professionally managed accounts and helpful information on the global financial market.
The foreign exchange market is by far the largest financial market capitalization in the world, with close to four trillion dollars’ worth of daily trades. As a result, its huge trading volume, the number of forex brokers is increasing faster than ever. Since there exists a large selection of retail forex brokers to choose from, it is important for traders to do enough research so as they find a broker with an excellent reputation.
The choice of a forex broker can greatly affect your success or failure in your future forex investment. In order to choose a currency trading broker wisely, here are some features you should look for.
i. Professional Website – A broker’s website gives you a clear picture of what they are. It is important that you choose a company whose website has a professional look and improved user experience.
ii. Regulation- Check to ensure whether the broker is regulated, and has obtained necessary licenses from regulatory authorities such as FCA U.K., the Financial Conduct Authority.
iii. Competitive Spreads- Before setting up a trading account with a broker, find out what spreads they offer. Ideally, spreads should be at most 3 pips of all major currencies.
iv. Reasonable Leverage- The concept of leverage makes the forex market appealing to retail traders. Though a higher leverage comes with greater risks, choose a broker that offers a leverage ratio starting at 100:1 to 400:1.
v. Customer Support- Forex trading is a 24-hour market and therefore requires supportive brokers. Lack of customer support may result in poor decisions and in turn, losses. Therefore, make sure your dealer responds to queries in time.
vi. Stop Loss Protection- A feature that limits the number of losses on client accounts. Brokers who offer this feature ensure clients do not end up losing all their money. Additionally, the broker should also offer a demo account to help beginners learn and improve their trading strategies before investing in real money.
vii. Competitive Platform Technology – It is one of the essential verifications every trader should make before choosing a broker. The trading platform should be user-friendly and easy to navigate. It should provide functionalities that make it easier for traders to achieve their goals within the shortest time possible.
With a reliable forex broker, you can enjoy great trading benefits in the highly profitable and largest financial market. Therefore, take into account all considerations you should make when choosing a reliable forex broker, open a trader’s account and use available resources to learn and craft your forex trading strategies.