What is a Forex Broker, its Functions, and How to Choose a Broker?
To perform trading operations,
a trader requires access to the interbank Forex market, which is
provided by a broker. In other words, a broker is an intermediary. On the Forex
market, a broker fulfills the above-mentioned functions and acts as an
intermediary between an interbank currency facility and a trader.
A Forex broker is a legal
entity that has all required documents for operating on the Forex market, such
as a license, registrations, etc. The entity has the right to provide access to
Forex resources to practically everybody who wants it, both individuals and
other legal entities. Licenses and permits for providing brokerage services are
issued according to the country’s legislation where a company is registered.
Broker’s functions
The major activity of a Forex
broker is providing access to trading on the intrabank currency market to
everyone who wants it:
• Providing clients with trading platforms
(terminals).
• Providing them with the leverage from 1:2 to 1:5000 for trading on their
accounts.
• Collection and storage of data on all transactions performed by a client
(transaction history).
• Online feed of current quotes for all available trading instruments.
• Providing informational and educational services on
trading.
Broker’s earning
A broker gets its major
earnings from spreads. Spread is a difference between Ask and Bid prices of an
asset.
Commission for performance of
trading operations. In addition to spreads, some broker charge traders with the
commission for their transactions. It’s not very common for the Forex market,
but when it comes to stock markets, the commission is the primary source of a
broker’s earnings.
Providing educational content
and programs for free (depending on service) or on a paid basis. A broker can
offer its clients different free-of-charge educational and bonus programs, but
charge them, for example, for trading signals or online customer support. In
some cases, a broker may charge its clients for using specific software.
As a rule, terminals on the
Forex market are provided for free, but in the case of trading on stock
markets, one may have to pay. Terminals that are intended for trading on such
markets usually charge a monthly fee. Apart from this, a broker may offer paid
access to specific software.
How to choose a broker?
The first thing one should pay
attention to is whether a broker has a complete package of licenses and permits
for working on the Forex market or not.
After that, it would be wise
to check for how long a broker has been operating on the market.
One should go for forex
companies that have been in the industry for a long period of time. It doesn’t
mean that any brokerage company that appeared on the market not long time ago
is bad by definition. Even if it is a very promising and prospective “novice”,
no one can be sure of its success/failure in the future, because the industry
is full of powerful competition.
Reading reviews of a company
might also be helpful. There are plenty of independent resources floating
around the World Wide Web where one can read about other traders’ experience of
cooperation with any given forex broker.
The next thing to do is to
read services provision terms carefully, compare spreads and commissions, lists
of available instruments and their specifications. Conditions at different companies
may vary significantly. For example, there are brokers that offer fixed spreads
irrespective of the current market situation. It’s a trader’s choice to decide
whether it is good or bad.
Compare the number and types
of available trading platforms (terminals). MetaTrader 4 has been
the most popular platform for trading on the Forex market for years but there
are a lot of other terminals, including mobile versions, which are very topical
in the modern world. After learning about their features and characteristics,
one can choose the most suitable variant.
Read about complementary
services offered by a broker, such as individual training, daily analytics,
both texts and videos, trading signals, etc.
Find out about methods of
depositing and withdrawing funds that are offered by a forex company. A variety
of payment systems, request processing speed, and limits for transactions may
sometimes be a winning argument for a trader in matters of cooperation.
By RoboForex
Analytical
Department
