Forex Broker – Who Are They?
You’ve heard about it. Now you want to know what is it. A forex broker is an intermediary between you and the “interbank”. If you don’t know what the interbank is, it’s a term that refers to networks of banks that trade with each other. Typically a forex broker will offer you a price from the banks that they have relationships with. Many forex brokers use multiple banks for pricing and they offer you the best one available.
Opening a Forex Trading Account
To get an account with a forex broker, it’s a bit like opening a bank account. It requires paperwork and identity verification and such. The whole process takes a few days. However, if you’re just looking to test the waters, that is much easier, forex brokers offer demo accounts that you only need to provide minimal information to open. This allows you to get set up and get some practice trading until you’re ready to get started with real money.
Forex Brokers also offer you leverage
The ability to use forex leverage comes with every account and it varies in amount anywhere from 10:1 to 100:1. A 10:1 leverage means that for every $1 in your account, you have $10 to trade. This is both good and bad as you can make exponential profits, but you can also suffer from exponential losses. The law requires forex brokers to disclose this, and they typically do in fine print. New traders typically get excited and blow their accounts out quickly if they jump in too fast.
There are two balances
When you’re working and trading with a forex broker, there are two balances. One balance is your actual balance, not including your open trades. Your other balance, is the balance that you would have if you closed all your trades. The second balance is called your net balance.
When you open a forex trade with a broker, they pass it through to the market for you. In the process of this, they offer you a price that is slightly different than the price they are able to get. This is called collecting the spread. The spread is a commission of sorts that is mostly transparent to trading from the trader’s point of view. However, you always have to keep in mind that the beauty of the spread from the broker’s point of view is that it’s taken from your leveraged trade size not your account balance size.
Forex brokers exist to make it easier for you to connect with the banks out there that are buying and selling currencies. They have a set of rules that they have to follow and certain processes that are required. It really is comparable to having a bank account. If you want to trade forex you can find a list of forex brokers available online.
Which Forex Brokers are the Best?
For me, personally, I’d squeeze it down to three (3) main brokers (always depending on where you’re at). Asians, particularly, rate FXPRIMUS, XM and Instaforex as their top brokers not only for the spread and leverage but also CUSTOMER SERVICE. As traders, we deserve to be treated well as we’re putting our own hard-earned money to these brokers. The least they can do is provide fast response to our queries, help us solve any difficulties we face, and provide a kind-of ‘after sales service’ which includes email reminders, promotions and not to forget bonuses and well deserved gifts. I wrote an article on how to choose the best Forex Broker here, if you have the time.
Hope that helps.