Foreign exchange, also known simply as Forex or Fx, is the market in which currencies are traded. There's no central marketplace for the Forex market; instead, transactions are typically completed through brokers. Since the market opened up to retail traders in the early 2000s, there has been an increase in the number of brokers to choose from. Traders must devote plenty of time to research their options to determine the broker that best suits their needs.
Reasons why brokers are important
A foreign exchange broker serves as a bridge between two parties: the buyer and the seller. Even though it is possible to directly trade currencies through banking institutions, brokers supply other services including charting software, analysis tools, and considerable amount of leverage. All of which can benefit traders.
Trades can be done generally through two types of brokers, and these are: market makers and electronic communications networks, or ECNs. Market makers set both the bid and ask prices based on their own interests, and act as counterparties to every Forex transaction. What this means is, any time you sell, they must buy from you, and vice versa. ECNs in contrast do not create prices, but only connect market participants to each other. They obtain prices from multiple market participants, including banks, market makers, and other traders in their network, and indicate the best bid/ask quotes on their proprietary trading system. Whether you work with authentic ECN brokers or market makers, below are a few pointers to help you find the right broker for you.
Tips on choosing a broker
Regulation - Verify if the Forex broker you want to transact with is regulated by a major overseeing body. If the company submits itself to an oversight body voluntarily, then you are ensured of its transparency and reliability. In the US, forex brokers have to be registered with the US Commodity Futures Trading Commission and be affiliated with the National Futures Association. Each nation outside the United States has its own overseeing body. A Forex broker that is operating in a location that lacks or has little regulation may be a riskier location to open a trading account than one that is operating in a location with strong regulatory compliance and enforcement.
Year founded - Choose a broker that's been in the market for ten years or more. Longevity implies that the organization understands what it is doing and how to take care of their customers.
Testimonials - Before transacting with a broker, be sure to investigate what others are saying about them. Look into testimonials about a broker's simplicity and cost of transactions, customer support, and reliability.
Online trading has made the Forex market more accessible to average retail traders. With the right kind of broker, good understanding of the market, and practicing effective trading habits and strategies, one can find trading in the Forex market rewarding.
