Forex brokers: Bridge Between Trader and the Forex Market
Forex brokers are parties, can be companies, institutions, agents, or individuals where they stand as a bridge between sellers and buyers. Then what products are transacted? The form of forex or foreign currency, in trades activities between country there are currency exchange, this exchange has been going since long time ago mixed relations economic, between country began to link with each other, so arguably forex brokers have been around for long time ago, if seeing the increasingly massive development of economic relations between countries, as well as rapid growth in the forex market, of course, forex broker also increasingly on the world
Why Do We Need a Forex Broker?
In fact, forex trading activities are dominated by large banks throughout the world. Transacting directly with these big banks is almost impossible for individual traders. In addition to having to have a liaison, transactions with large banks also cannot be done in small amounts. In other words, the standard of practical transactions is beyond the reach of relations traders like us.
Well, this is where the forex broker takes part. The forex broker will arrange for each individual trader to participate in forex trading. Brokers will forward requests from traders to larger brokers, and so on so that later every trader request can be accommodated in the large and massive forex market.
Forex brokers also provide software and other devices that allow traders to make transactions online via computers, laptops, and various other gadgets. Therefore, traders can access the forex market simply by installing certain programs or through browsers. Transactions can be done anywhere, anytime
Where Do Forex Brokers Earn Profits?
Each broker has different rules in drawing fees for their services. But in general, brokers can charge commission fees and or spread. Commission fees are deductions in the number of dollars charged on each volume traded by the trader. Whereas spread is the difference between the selling rate and the buying and selling rate (bid and ask). There are forex brokers that enforce both, but there are also those that only set Spreads only or Commission Fees.
Usually, the spread size depends on the type of currency pair to be traded. Spreads can be worth around 2-3 pips for heavily traded major currency pairs such as EUR / USD (Euro against US Dollar). On the other hand, Commission Fees will vary depending on the type of broker.
Online Forex Broker
In the old days before there was the internet, traders used the old communication model, such as via telephone, to make transactions to brokers. But in today’s internet era, almost all forex brokers must facilitate online trading so that the trader is not left behind and is considered outdated.
With the development of this technology, there are many conveniences that traders get. In addition to eliminating the difficulties of pre-internet trading and allowing transactions anytime and anywhere, traders can get real-time trading facilities. With a special advanced application (MetaTrader), traders can monitor prices and carry out order execution directly on the trading platform. In addition, traders are also facilitated with a variety of tools for analysis, news access, and much more.
Regulation and Legality of Best Forex Brokers
The problem that then arises is how to choose a forex broker among hundreds of online forex brokers around the world. When it was still a little, broker choices were very limited, so there was almost no demand for traders to be selective. But with the growing global interest in forex trading, new brokers have emerged with various types, advantages, and disadvantages. There are good brokers, but there are also those that need to be watched out. Some work professionally, some eat funds from their own clients. Such a situation needs to be well understood so that traders are not wrong in choosing a broker.
One way that can help traders choose a safe broker is to find out info about the broker’s regulations. Regulated forex broker means that he must follow the standards and regulations set by the relevant regulator.
Forex broker regulators are generally official financial institutions or institutions under the government of a country. The better the regulator, then the rules followed by forex brokers will be tighter. Brokers cannot operate on a standard that is inconsequential, because there is a threat of punishment imposed if he violates the provisions of the regulator. Brokers can get a warning, be subject to sanctions until the operational permit is revoked.
Well, which regulator of forex brokers is credible? In this case, institutions in developed countries such as the NFA (United States), FCA (United Kingdom), ASIC (Australia) are often the main choices
Various Types of Forex Brokers
Generally, traders do not care and may not know how brokers actually manage every transaction that comes from the client. Traders can only guess from broker’s claims and the quality of services they obtain. There are several type brokers currently in circulation, but actually, all types of brokers come in two main categories: DD or Dealing Desk and NDD or Non-Dealing Desk
Basically, dealer brokers operate with their own markets and do not display real exchange rates (prices) as presented on the interbank market. Although still providing buy/sell execution options to traders, dealing desk brokers are often suspected of manipulating. In fact, brokers can trade against their own clients because the profit also comes from the position of the losing trader.
A better choice is, of course, a non-dealing desk broker. Here, each transaction will be forwarded to a larger bank or broker. The profit of the broker really comes from the spread and commission fees, so there should be no trading terms against the client