The forex market is the most liquid market in the world, with an average daily turnover of around 6 trillion USD.
To gain access to this market, you will need to use an online broker. To choose the best broker to trade with, you must first understand how they operate and, most importantly, how they can assist you.
Each broker is unique and has its own set of advantages and disadvantages. Some brokers may place a greater emphasis on customer service or low fees, while others may have more specialized tools and services. Knowing your trading style and the areas in which you want your broker to excel will help you narrow down your quest.
Of course, there are some aspects you should be aware of when looking for your perfect broker; the industry has different regulations, and different countries impose stricter regulations than others.
In this guide, we’ll go through what forex brokers are and what services do they offer.
What is a forex broker?
A broker is needed if you want to trade in the forex markets. But, exactly, what is a broker? Consider the following example to get a sense of what I mean:
Let’s say you want to buy an orange (because it’s my favourite fruit), so you go to a market. The orange is what you want to buy, and the market is the only place where you can buy it, as that is where people are selling oranges.
A market is a place where buyers and sellers meet. However, when you go to a market, you do not generally see many people selling oranges to one another; they will be sold through a fruit seller.
This is what it’s like in the forex market. You have buyers and sellers of multiple currencies – they need a marketplace, as well as a facility to buy and sell such currencies.
In the forex markets, however, buyers and sellers can be miles and miles away. To find each other, a process that suits their interests is required: this is where the broker comes in.
A broker is a financial intermediary who connects transaction counterparties without being a party to the transaction.
A broker in forex is an individual or business who executes orders to buy and sell currencies on behalf of their clients.
They serve as middlemen between banks, putting buyers and sellers together in return for a fee.
Services forex brokers offer
1. Account opening
Nowadays, opening a forex trading account is easy and can be done online. The forex broker will enable you to deposit money into the new account as security before you begin trading.
To open an account, you simply choose the account type that you would like to open, then fill out the broker’s online application, deposit money, and voila! You are ready to start trading.
Additionally, brokers also offer a demo account, through which you can get the feel of a real market without depositing your own capital.
2. Trading facility
To trade, you must have access to currency pairs; brokers do this by providing you with access to currency pairs.
After that, you can start buying and selling currency pairs. For instance, Buying the British Pound with the US Dollar requires the purchase of the GBP/USD pair. After that, you can try to profit by closing the pair when the currency fluctuations move in your favour.
3. Leverage
A broker provides you with leverage based on the size of your account. The leverage can range from 10:1 to 1000:1. For example, if you have $100, your broker can offer a leverage of 1:10, allowing you to make an initial trade of a currency pair worth up to $1000.
But don’t let this get to your head. Traders often overlook the risks associated with leverage. It may increase your earnings, but it may also lead to a devastating loss. It’s a two-edged sword, as we call it, in a trading world.
4. Trading platform
A trading platform is a piece of software that allows you to buy and sell multiple currencies.
Almost all forex brokers offer a trading platform. The most common among them are MT4 and MT5. You can download them through the brokerage website and installed them on your computer. Moreover, some brokers provide a mobile app on which they offer a trading platform.
There are forex brokers that allow you to trade using a web browser, which can be useful because it allows you to trade from any device without the need to download software.
5. Customer support
The road to success in online trading can be a lonely one. You are unlikely to have a squad or bosses to direct you. So, when it comes to it, you can really benefit from a broker’s customer service, and many provide excellent support and guidance for new and experienced traders.
6. Spreads
The spread is one way for brokers to make profits. This is the difference between a currency pair’s bid and ask prices or the price at which to buy and sell. Forex brokers monitor the market before quoting you a price for the pair. This price is slightly higher than the market price.
For example, if the currency’s asking price is 1.15550-1.15551, the spread is 0.0001, or 1 pip. A pip is a smallest unit of measurement used to express the value of the broker’s fee.
The spread is one method of calculating the broker’s fee.
This makes sense from a business perspective. The broker offers service, and in return, they make a profit.
7. Education
Don’t worry if you’re a newbie; almost every good broker offers comprehensive lessons and courses on how to trade the forex market effectively and without prior experience.
Many brokers also provide tutorials on forex trading if you want to learn the nitty-gritty of forex.
Bottom line
Brokers have a lot to offer, whether you’re just getting started or an experienced trader.
Choosing the right one will assist you in learning, growing, avoiding risky situations, and strategizing along the way.