What Is A Forex Broker

What is a Forex Broker

A forex broker acts as an intermediary between a trader and the foreign exchange (forex) market. They provide clients with a trading platform that enables them to buy and sell currency pairs. Forex trading involves trading one currency against another. There are minor currency pairs such as the EURUSD and GBPUSD along with more exotic currency pairs such as the USDDKK and USDMXN.

Forex market

The forex market is the largest in terms of volume with trillions exchanged every day. Thus, most forex brokers only handle a small amount of the overall trading volume in the foreign exchange market. Forex broker services are also provided for institutional clients by larger firms such as investment banks.

Forex trading

Retail forex traders use forex brokers to gain 24-hour access to the currency market where they speculate on the rising or falling prices of a currency pair. If they anticipate the price of a currency pair was going to fall, they would look to short (sell) that pair. If they thought the price was going to rise, they would look to long (buy) the currency pair.

What is a Forex Broker - Trading Fees
What is a Forex Broker – Trading Fees

Forex broker fees

Forex brokers primarily make money on the difference between the bid-ask spread, but may have other ways to do so as well. This can include a commission for every forex trade placed with them and a spread mark-up. Some forex brokers charge other fees for accessing specialised trading platforms and tools. The lower the brokers spreads and commissions are, the more you can save on your overall long-term trading costs.

Forex broker leverage

Forex brokers can offer leveraged forex trading which allows a client to increase their position size to an amount they wouldn’t be able to without it. Whilst this can mean greater profits, it can also lead to greater losses. Thus, leverage is often referred to as a double-edged sword. A 1:30 leverage means that for every $1 in your account, you have $30 to trade.

Forex broker regulation

There are both regulated and unregulated forex brokers that offer online trading services to traders around the globe. If you opt for a regulated forex broker then you are likely to have more protection than you would if you chose an unregulated forex broker. Most professionals and expert traders would only ever consider trading online with a regulated forex broker.

What is a Forex Broker - Trading Platforms
What is a Forex Broker – Trading Platforms

Forex broker platforms

A forex broker will have a selection of trading platforms for you to choose from. Most brokers will offer the popular MetaTrader platforms which are widely regarded to be one of the best forex trading platforms due to their ease of use and abundance of built in trading tools. This makes them a popular choice for traders of all experience levels. Other platforms include cTrader, NinjaTrader and TradeStation. From the brokers trading platform, you can analyse the currency market for trading opportunities, place and manage trades.

Forex broker tools

Some forex brokers will provide clients with additional trading tools to help them with analysing the forex market and to perform trading actions with increased efficiency. This can include economic calendars, trading calculators, sentiment analysis and much more. The best forex brokers will supply clients with a generous selection of trading tools to help assist them with their daily trading activities.

Forex broker education

Forex brokers can supply educational materials free of charge to clients. These educational resources help traders of all experience levels to improve their trading knowledge and skills. This can include trading guides, tutorials, videos, webinars, seminars and courses.

Forex broker account funding

Every forex broker has methods of making deposits and withdrawals to and from your trading account. This will usually include a combination of bank transfer, credit/debit cards and online payment processors such as Skrill, Neteller and PayPal. You may wish to check the funding options available to ensure there is something that is convenient for your needs.

Opening a forex trading account

You can open a forex trading account with a broker by completing an online form and submitting your documents for verification. This will usually include a proof of identity such as a passport or drivers license along with a proof of address such as a bank statement or utility bill. This verification if a normal part of the KYC procedures.

Once your account has been verified, you will be able to fund it and login to the brokers trading platform to start trading online. If you do not wish to trade with real money, the majority of forex brokers will offer a demo trading account for you to practice your trading strategies and to familiarise yourself with the trading platforms. Once you feel confident enough and continuously have success, you can then consider opening a real trading account.

Forex broker summary

Hopefully you now have a good understanding on what a forex broker is. If you wish to open a forex brokerage account to trade forex online with, you may wish to take a look at my best forex brokers.