As a trader you sometimes may wonder how much money do Forex brokers make and how exactly do they do it. If you are new to currency trading the job of a broker might seem minor and unnecessary. However, every experienced trader will tell you that having a reliable broker is more than half of your success on Forex. To better understand how Forex brokers make their money, let’s talk about brokers in general and ways to ensure you go with the right one for you.
How to choose a reliable Forex broker
For starters, we should establish how Forex brokers work. On Forex market a broker is a person or a company who provides access to the trading platform to their clients. Additionally, they serve as a middleman for the financial transactions and can choose to support the traders with various educational sources to ensure the trading success. In simple words, a broker is your key and guide to the market. With the growth of online trading numerous broker companies came to exist. Which brings us to the next question: how to choose a reliable Forex broker? Here are a few criteria you might want to consider:
The broker has to be open and straightforward about all of the services they offer. Forex itself is confusing enough, so make sure your market access provider is able to be clear and allow you opportunities to educate yourself in the process.
A good Forex broker has to use effective tools which will make the trading process simple and productive. Most important tool is the trading platform, so ensure that your broker offers a solid platform choice as well as the comprehensive instructional manual to it.
You should have an opportunity to practice your skills in a demo account for free. Respected brokers are interested in their client’s success and therefore, will provide an opportunity to apply the knowledge and master the abilities in demo mode.
In case you do not have a large initial amount you should be able to start trading with whatever money you have available. Usually, the broker will offer a selection of account types and you can pick the type that fits you and your budget.
Communication is key and trustworthy brokers need to provide convenient ways to connect with their clients. Whether it is an over the phone support team or an email service, as a customer you have to be able to get your questions answered in a timely fashion.
As you have made your choice with the broker you might also want to familiarize yourself with the fees that your broker will be charging you in the process. Which brings us to how Forex brokers make money.
How Forex brokers make money
There are two main ways for a broker to charge their clients. The fee can be applied per trade or per spread. The trade commission is pretty self explanatory: you get charged a certain percentage every time you process a trade. And the spread charge is not much more complicated than this. Spread is the difference between the buy and sell values for every particular currency. The higher the spread the more a trader gets charged. So, when you are looking for a broker, try to choose the one with the low spread.
Additionally, brokers may offer paid services such as advisory or trade management. To get a full picture, you will have to communicate with the chosen broker. As you now have a better understanding of how Forex brokers make money, you may start considering to become a broker yourself. This is a whole other topic, just keep in mind that in order to become a broker you first need to be a successful trader with the deep knowledge of the market.