Forex Trading Broker
Forex Trading Broker
Forex trading brokers deal in money. Forex (foreign exchange), a term used to describe the trading of the world's currencies, is a specialized form of day trading (traders who invest by opening and closing their market positions on the same day). Forex is the largest market in the world, with trades amounting to more than USD 1.5 trillion every day.
Forex has no central trading exchange, but is conducted via the “interbank”, over-the-counter (OTC). Trading takes place via phone or over electronic networks. Forex is a 24-hour market with hubs in Sydney, Tokyo, London, Frankfurt and New York. To begin trading in forex, a customer needs an account and a trading platform with a reputable forex trading broker. A forex trading broker is an individual or firm that acts as an intermediary, putting together buyers and sellers. Unlike equity brokers, forex trading brokers do not charge a commission, but instead make their money on the spread, the difference between a currency’s purchase price and its sell price. Among forex trading brokers, the difference in spread can be as large as the difference in commissions in the stock arena: the lower the spread, the lower the commission.
A reputable forex trading broker will be knowledgeable of the market and its risks. Because there is no central trading center, brokers are regulated by their own country. In the United States, a forex trading broker must be a registered member of the Futures Commission Merchant (FCM), and will be regulated by the Commodity Futures Trading Commission (CFTC). In addition, because of the huge amount of capital required (leverage), a reputable broker will be backed by a large bank or lending institution.
A forex trading broker can offer many different trading platforms (software) for their clients. These platforms often feature real-time charts, technical analysis tools and real-time news. Forex trading brokers may also provide technical and fundamental commentaries (evaluation of a security), economic calendars, other research plus support for their trading platforms.
Because the sources of profit in forex are merely fractions of a cent, leverage is necessary to trade. Leverage is the ratio between total capital available and actual capital. For example, a forex trading broker who offers a leverage of 100:1 is offering to lend the customer $100.00 for every $1.00 of actual capital. A leverage of 250:1 means $250.00 for every $1.00 of actual capital. Many forex trading brokers offer a range of leverage options, allowing the customer to vary their trades according to the volatility of the currency.
A currency trade consists of simultaneously buying one currency while selling another. The currency combination is called a cross (i.e. the Euro/US Dollar) All forex trading brokers will handle the most commonly traded currencies, the “majors”: EURUSD (Euro/US Dollar), USDJPY (USD/Japanese Yen), USDCHF (USD/Swiss Franc) and GBPUSD (Great Britain Pound/USD).
Bottom line: the key to successful forex trading is knowledge. Forex is speculative with potential for huge profit and profound loss. Watch the market, research the venue, and choose a reliable forex trading broker.
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