You have probably heard of the Forex Broker term, but you are still unaware of its real meaning? It’s almost impossible not to pay attention to the fact that many people are getting more interested in Forex trading and its market, which is the most liquid one on the planet.
In this text, you will learn all the basics about Forex in general, and you’ll get a more comprehensive picture of what makes one broker a quality one.
What is a Forex broker exactly?
A Forex broker is a financial firm that offers Forex traders access to a platform for buying and selling numerous foreign currencies worldwide. In short, Forex stands for “the Foreign Exchange”. This type of broker may also be known as currency trading or retail trading broker.
Speaking of transactions, in the Forex market, they are, without exception, always between a pair of two different currencies. As you probably know, until now, the Forex market is the decentralized, most liquid financial market on the planet for trading currencies.
Why is Forex Broker so important?
The primary role of Forex Brokers is to provide an exchange of currencies of ten countries that make up the G10. Here are these top 10 nations and currencies:
- U.S. Dollar (USD)
- Euro (EUR)
- The pound sterling (GBP)
- Japanese yen (JPY)
- Australian dollar (AUD)
- New Zealand Dollar (NZD)
- Canadian Dollar (CAD)
- Swiss Franc (CHF)
Please have in mind that many Forex brokers allow their clients to trade in other currencies, especially those of emerging markets. When a client uses one Forex broker, they open a trade by buying a currency trade. When they sell the same pair, then they close the transaction.
It’s also important to remember if the exchange rate gets higher while the trader closes the trade, in that case, the trader makes a profit. Otherwise, a trader receives a loss.
How can you open a Forex account?
Have you decided to open a Forex account? Say no more. Nowadays, opening a new Forex account is the simplest as ever, and anyone can do it online. All you have to do before considering trading is to deposit money onto your account as collateral.
You need to know that Forex brokers also provide leverage to their customers, so they can trade more significant amounts of money than they have for deposits.
How exactly do Forex brokers make money?
Forex brokers earn money in two simple ways. The first way of earning money is via the bid-ask spread of a currency pair. Here is one example:
- When EUR/USD Dollar pair is 1.20010 bid and 1.20022 ask, then the spread between these prices is.00012. It’s also known as 1.2 pips.
The second way in which brokers make money is by charging additional fees. It means once a retail client opens a particular position at the asking price and then closes it at the bit price, you can be assured that the Forex broker will take that spread amount.
Remember, Forex broker refers to trading between pairs of currencies of the nations represented in the G10. Clients of its traders are investors or speculators for large institutional clients. There is a lot of choice for traders online for interested investors.