One thing that excites the experts and even beginners in forex, foreign currency trading, is the way it can help build up huge sums of money for them. However, a lot of them don’t realize that their knowledge may be incomplete about this field of investments. You must have heard of many traders getting into forex and promising you a fresh rush of money in your bank account. The only thing that would have help you back is the uncertainty about what it actually entails. So, let us explore the concept of forex and see how a professional forex broker can help you in this regard.
What is a forex broker?
Forex broker, or retail forex brokers, or also known as currency trading broker is an intermediary in the commercial and financial trading realm who sells and buys asset or assets for commission. This implies that a broker is a salesman for the financial assets. However, the origin of this is largely unknown. The role of such a broker has grown into an important one over the last few years, given the growing interest of people in financial instruments to multiply their wealth. This allows a person to put the live currency to the test of one’s knowledge on forex trading.
What does a forex broker do?
A forex broker is quite relevant in the circles of commodities, equities and derivatives. Even the real estate world and the insurance sector have been leveraging these people since a long time. These people used to work on phone calls earlier before internet surged into the world. They would trade assets on behalf of clients in lieu of commission. However, now the computer applications make it possible for the brokers to do everything on the web. The brokers used to work for brokerage houses, which gave them their very name.
How does retail forex work?
The history of forex trading is witness to the fact that traditionally the forex trades have happened between colossal entities. Banks, importers and exporters, multinational companies and many other such huge entities have been known to involve in forex trading. But these days, even the individuals have begun penetrating into this area and have started trading assets. The big trading houses earlier used forex trading for commercial uses and for hedging against the risks centered around international currencies. But retail forex has hit the nerve of core investors.
It is not difficult to find a forex broker involved in retail forex. Retail forex works through the dealers, who are often very small or even individual investors. The boom of internet in the late 1980s resulted in the mushrooming of the concept of retail forex where an individual forex broker would be able to get into the business of forex trading. This brought the gift of forex trade to the most elemental level and connected individuals to the roots of financial management. The job of handling foreign currency exchange was not restricted to MNCs anymore and anyone could participate in it to become big.
How does retail forex broker work?
A retail forex broker will allow a trader to set up an account with limited quantity of assets and then trade them online with the web-based trading platforms. The spot currency market helps in the majority of the trading. However, dealing in derivatives and options also takes care of wise financial management. Since the individual traders can trade with margin accounts, the concept of retail forex has caught fire among the individual investors. This theory allows the traders to effectively go for capital borrowing for making trade and then multiply one’s principal for trading larger amounts, which can go up to 50 times the capital they hold in hand. Isn’t that an amazing way to increase money in one’s reserves? For sure, it is!
Who are dealers and brokers?
A large majority of the retail forex brokerages will be found to act in role of dealers. They offer liquidity to the traders by taking the other side of trade. The bid-ask spread allows a forex broker to earn a percentage of this trade as a fee for their service. Before the advent of retail forex, trading sums of more than $1 million were forbidden by the high bid-risk spread.
But in the year 2000, the retail forex broker started offering their online accounts to the private investors, for streaming the prices from Electronic Banking Services system (EBS) and major banks too. A number of small traders were bundled together and then negotiated in the interdealer market, thus allowing the provision of retail forex services. Because of the large volumes of trade, the participants of the interdealer market were also willing to give liquidity for accessible prices of retail brokers. Though the bid-ask spread is found to be higher for retail traders than the interdealer market, yet as the trade volume rises, they become narrower.
Modalities of trading
You need to understand the modalities of trading as well. Retail traders can access the market only through a broker. There exist 2 modalities of trading.
- No dealing desk: This kind of trading gives traders direct access to interdealer market, though a fee may be charged. Wider and variable spreads can also exist, which is subject to the market conditions.
- Dealing desk: This makes brokers act as the dealers and take completely opposite position of traders. Traders will have to pay larger spread on average and on discretionary basis, the orders can be filled.
Other services of forex broker
A forex broker also offers a number of other unique services.
- They can provide vital information and research services, along with news feeds.
- They conduct the asset price charting activities.
- Trader training programs and advices are given by them.
- The professional management of accounts is also handled by them.
If you want a better management of your wealth and want to grow big in life, then you certainly need a forex broker to help you multiply your wealth. You get your life only once, make it large through forex trading.