Foreign exchange trading volumes have risen abruptly this year, as investors have increased their bets on the weakened dollar.
If you’re going to get into forex trading, you’re going to need to work with a foreign currency broker. Who are they and what do they do?
We’ll walk you through all the details below.
Brokers & The “Interbank”
If you’ve done even a little research into Forex trading, you’ve likely heard about the Interbank. The Interbank is what the Forex market is traded on: an electronic network of banks that trade with one another at various prices.
A forex trading account, then, is kind of like a bank account that you can use to purchase currencies and hold onto them.
A forex broker allows you easy access to the bank networks. Before forex brokers, only traders with a huge amount of personal wealth and relationships to various banks could get in on forex trading. Now, brokers can serve as your middleman to the banks, checking various prices and offering you the best one available.
Benefits Of A Foreign Currency Broker
Outside of being your in to the world of currency trading, forex brokers can also offer you leverage in an amount ranging from 10:1 to 100:1. A 10:1 leverage would mean that for every one dollar in your forex account, you have ten dollars to trade. 100:1 would mean one-hundred.
Leverage can be good in creating exponential returns, allowing you access to money that you don’t really have. At the same time, it can also potentially increase your losses if things don’t go your way. Brokers are legally required to disclose this, but it’s always worth reminding yourself to take it easy as you get started.
Because Forex is a relatively new world for most investors, many brokers have taken the extra step to help provide educational resources for their clients. Brokers benefit from having up-to-date and well-informed clients, and the resources they can offer can help you invest smarter and make more money.
Forex Broker Commissions
When you do a trade through a forex broker, they pass it through the market for you. During this process, they offer you a price that is higher than what they actually can get. This amount is considered a commission of sorts, and is typically referred to as ‘collecting the spread.’
The spread is a generally transparent process of collecting payment, but you should always look into a broker beforehand and see how they work and what they require.
Understanding Foreign Exchange Broking
If you’re planning on getting into forex trading, it’s essential that you understand exactly what a foreign currency broker does and how they function. They are an important part of the forex ecosystem, and understanding their value will be your key to becoming a successful trader.
If you’re looking for more information on forex trading, check out our blog.