Forex brokers are an important and indispensable part of the Forex market that serves as middlemen between the traders and the interbank system (the interbank system is consisted of the network of financial institutions that interact and trade with each other). Forex brokers are financial service companies that basically offer platforms to traders for foreign exchange services.
Trading occurs between currency pairs of most countries that make up the G10. Such currencies include the United States dollar, the British pound, the Australian Dollar, the Japanese yen, the European Euro, The New Zealand Dollar, the Canadian dollar, The Swiss franc.
How does this work? The Forex market is a global one and more often than not, it is rare to meet buyers and sellers in just anywhere you go. Like the buying of foodstuff at the marketplace, buyers and sellers of currencies need a place to come together and find people with matching interests in their wants and wares. The buyers and sellers might also be continents apart so there needs to be a mechanism in place that would help the interest of Forex traders.
The role of a Forex Broker
The Forex broker comes in here. Like enunciated earlier, the broker serves as a middleman between individual traders and the rest of the market at large. Interested buyers go to the broker to match them with a respective seller and vice versa. The broker also acts as a middle man between traders and liquidity providers.
Liquidity providers are basically the parties that provide liquidity for the market. As trading occurs and there are as many buyers as there are sellers and vice versa, the market is said to be liquid. When people buy and sell currencies, they are most likely buying and selling to and from liquidity providers.
Each brokerage company is different, and each has its own benefits and downfalls. Some brokers exclude traders from counties outside their jurisdiction, others have a string focus in customer support and other things like better tools and services. When dealing with a broker, they collect a commission on each trade called a spread. A lot of South African Forex brokers offer generous leverage on accounts. Leveraging allows one to control a larger position in the market than the spread should normally allow. There are also brokers who provide a versatile knowledge on the market with generous advice to help traders circumvent avoidable beginner mistakes in new markets
At a time, broker fees were mostly generated through commission gotten from trades;however that is changing rapidly and heralding the way for a new and more accessible market. The trading platform used by brokers is software that enables them to help connect and trade different currencies. They utilize access to the internet to connect to global markets and prices that would help them in their business. Access to a broker helps one to be able to speculate and hedge on rising and falling prices and then take courses of action that would make a profit a possible guarantee.