Forex broker – Often times in the business of trading forex, we hear a lot of the term “broker“. As we have learned previously that forex trading doesn’t have any middle man (bank), currency exchange often occurs at the counter of computers between the buyer and the seller. In the next section, we will have a look at a broker is.
A currency trading broker popular known as forex broker or retail forex trader is an intermediary or a firm between you the trader and the interbank, or networks of banks that trade each other. Brokers allow traders access to the market 24 hours through their platforms to buy and sell currencies. Basically brokers have relationships with many banks around the world so they will offer you the best available price from a specific bank.
When working with a broker, it very important that you as a trader do a valuable research to find out more about the broker’s reputation and offer what you are looking for. It is also significant that when working with a forex broker, there are two balances, one will be your actual balance, not including your open trades and other is the balance you’d have if you decide to close all your trades.
How does forex brokers make money?
Brokers are usually compensated through spreads, the difference in the bid-ask currency pair. When you open an account with a broker, they will pass it through to the market on your behalf while offering you a price called spread which is slightly different to what they will get. For example, if the difference in a currency pair is 3 pips, that will formulate their commission. However these commissions remain transparent to trader’s point of view and it’s important that you note that the spread will never be deducted from your account balance but the trade size.