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.
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.
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 brokers 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 regardless 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