What is a forex broker? Useful Guide

A forex broker is a financial services company that enables traders to download and use a trading platform to exchange currencies or trade any other financial asset. As forex means foreign exchange, currencies are bought and sold within the forex market.

The expression forex broker can also be used to refer to a currency trading broker or even retail forex broker. In fact, a broker connects the trader with the interbank system to provide you with the best possible price.

How a CFDs broker works

To start with, when traders trade forex, it means that they open a trade and buy a currency pair. When they close the trade, it means that they sell that currency pair. For instance, if traders want to exchange U.S dollars for Australian dollars, or in other words buy U.S dollars using Australian dollars, they will buy the USD/AUD pair. Similarly, once they close the trade, they will see the pair which means that they will buy Australian dollars with U.S dollars. The current exchange rate will determine traders’ profit or loss. If it higher when they close the trade, they will make a profit. If not, they will take a loss. To achieve all of the above, traders register with a broker and download the best online trading platform for beginners, the MT4, so as to trade various assets and speculate on the direction of their prices.

Furthermore, brokers keep your funds in an account which adjusts its value depending on the profits or losses made during the day. They are also responsible for managing fees, like commissions, deposits and withdrawals as well as providing educational support. Moreover, they give access to other emerging markets besides the G10.

Retail investors and traders get charged additional fees for transactions made or for making use of specific software and tools. This is one way brokers make money. The other one is through the spread which is the difference between the bid and ask price.

How to benefit from a broker?

Opening an account usually takes a few minutes, maybe less. The majority of forex broker offers demo accounts as well which are very useful for testing one’s skills before implementing any strategies.

Investors can also take advantage of leverage which means that they can trade with a bigger amount than what they have initially deposited in their trading account. Getting into online forex trading with leverage is risky though as traders could potentially take a loss as well. 

Forex liquidity is another asset offered by brokerages. Liquidity reduces slippage risk and provides fast execution and tight bid-offer spreads. It also makes buying and selling within the market easier, transactions smoother and pricing more competitive.

How to choose the most suitable forex broker

Before choosing the right broker, you need to identify your goals and type of trader that you are. Brokers have both advantages and disadvantages. Reliability is the most important factor to consider along with safety of your funds.

The customer support offered is also important. You may need help along your whole trading journey so having immediate response is of high importance. Number of assets, account types and quality of platform offered are important as well but will depend on your trading requirements and style. Additional educational resources and tools can be considered an advantage.

DISCLAIMER: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication