When people look to buy property, they typically use an estate agent. These people use their contacts in the property market to help buyers and sellers come together. Essentially, estate agents are acting as middlemen. A Forex broker performs the same function – except the market they specialize in is currencies. So if you want to trade particular currency pairs – you need to find a broker that provides access to your desired instruments. While brokers are not essential to speculate markets (ie. you can go to your bank and buy any other currency rather than through a broker), they do offer some key benefits that tend to give them an advantage.
Typically a Forex broker will offer you a price from the banks of which they have lines of credit and access to forex liquidity. Many forex brokers use multiple banks for pricing, and they will offer you the best one available. To get an account with a forex broker, it is like opening a bank account. It requires paperwork and steps such as identity verification. The whole process takes a few days. However, if you are just looking to test the waters, forex brokers offer demo accounts for which you only need to provide minimal information to open. A demo or practice account allows you to get set up and get some practice trading until you're ready to get started trading with real money.
Before you find the appropriate forex broker for your needs it is important to understand what forex brokers are first of all so your selection is based on knowledge and understanding. The term forex broker can have many different meanings within the Foreign Exchange Trading markets, especially in the street jargon. At its basic meaning, forex brokers are the entity that stands between the trader (yourself) and the actual forex market. It is the entity/platform, where you will post your wanted transaction and they will be executed in the market. In the days we live almost all forex brokers adopt online platforms from which you can trade directly in the foreign exchange. Within the platform, you provide the broker – through the platform – with your transaction (buy or sell) and the broker will execute it in the market.
When you trade currencies online you obtain access to a highly competitive investment class offering a depth of liquidity that is hard to match in other types of investing. Exposure to currencies can also be used to hedge or ensure that you have a more balanced investment portfolio. Many investors are attracted to the levels of leverage offered by currency brokers. Leverage, essentially the amount of money a currency broker will lend you for trading, enables you to obtain exposure that far exceeds the capital or margin payment that you put down on a trade. For example, if you choose a broker that offers a leverage ratio of 100:1, this is an amount that broker is willing to lend you $100 for every $1 of actual capital initiated on a trade.
Forex brokers offer an essential service for markets, especially for retail forex traders. Since they began operations in the retail market, brokers have helped open up a field of opportunity that previously wasn't available to individual traders. With an internet connection and a computer or mobile phone, traders can now open an account and trade in a market that was previously only accessible to banks, large companies and financial institutions, and very wealthy individuals. Brokers also offer services that can be valuable in assisting traders to understand price movements and potentially make profits.
