Forex brokers, also known as retail brokers, or currency trading brokers, are the persons who buys and sells a particular asset for a commission. As glorified financial asset salesman, the forex broker has done a lot of good for the people wanting to get into forex trading. Back in the day brokers were intermediaries who found a role in equities, commodities, derivatives and even insurance and real estate markets. Their main tool was a telephone, which their customers could use to contact them and put in orders. Then, came the internet. Allowing clients to access their accounts and make trades through electronic web-based platforms, and applications. This led to many changes in the financial market, as we can clearly see the importance and dominance internet carries on the world of trading today.
Traditionally foreign exchange was only for the large clients, such as but not limited to, banks, multinational corporations and other big money companies like import/exporters, who used the foreign exchange to curb their currency risks.
Retail Brokers
As we said before forex brokers are also called retail brokers, and this is because of Retail Forex, which is a forex that is traded through dealers, most commonly by smaller, solo investors. This form of forex trading became popular in late 1990s, proportionally rising with internet-based financial trading. The good people who started working in retail forex, saw the opportunity to break with the norm of working only with large-scale businesses or financial institutions, and instead bring in the little guys, the regular joes of trading into the forex trading world.
Retail forex brokers allow traders to setup their accounts and trade online through internet-based trading platforms. Most of the time the trading is done through the spot currency market. What makes forex trading so appealing to the individual traders, is the fact that you can trade with margin accounts. This allows traders to multiply their investment on a margin of 10:1, and trade at 10 times their investment, and decuple their winnings. While this is most definitely a huge advantage it does carry the risk of losing ten times your investment and then owing the difference.
Forex Broker Services
Forex brokerages are usually the dealers, providing the investors with the trade they are looking for and taking the opposite side of a trade to provide liquidity for traders. Most brokers, as in rest of the finance world, make their money on small fees added to the bid/ask spread. Circa the year 2000, retail brokers started offering a different service of offering online accounts to private investors, streaming the prices from Electronic Broking Services(EBS) systems, and major banks. This allowed the individual traders to take part in the interdealer market through the bundling up of individual traders’ investments and trading them at better bid/ask spreads and with better opportunities for their clients.
Two forms of trading offered to forex traders are known as “dealing-desk” and “no dealing-desk”. “Dealing-desk” trading refers to the format where the broker acts as the dealer and pays a little higher fee to use the expertise and aid of a broker. While “no dealing-desk” model allowed traders to have direct access to the interdealer market, in return for a fee for this service.
On top of helping you get in and trade in the forex world, forex brokers also aid traders by providing information, news and research, asset pricing charting, advice, programs to help train the trader, and professionally managed accounts which does the work for the trader.