You want to trade currencies, you want to make profits, you want to dwell more in-depth into the market, but the question is how you will do it? Where will you do it? The answer is- forex broker. You may think, why do I need a forex broker? Well, this article would answer all your doubts.
Is it possible to trade forex without a broker?
Interbank foreign exchange markets consist of the largest commercial banks and securities dealers. In theory, people can do foreign exchange without a broker. They can do foreign exchange using an exchange office or bank. For example, if a trader believes that USD will go down and EUR will go up, a trader can exchange dollars for euros, buy EUR. In that case, the trader needs to have a huge amount of money because his leverage is 1:1. However, professional retail traders need brokers. The retail traders that use leverage can not trade without brokers.
As we know, the forex market is dominated by the interbank funnel; the big investment banks decided the exchange rates, which retail forex traders are supposed to trade ultimately. A forex broker here plays the role of connecting an individual forex trader with the foreign exchange market. You have to open a forex trading account with a broker to trade currencies. It is similar to opening a bank account. You store money in your bank account; you store currency trades in the forex trading account.
In the forex exchange market, currencies are traded in pairs. For example, if you buy EUR/USD at 1.1100, you are said to hold USD but in Euros’ worth. It would help if you had the price of Euro to shoot up to gain profits over the USD prices.
Why Do You Need a Broker for Forex?
For anyone wondering why I need a broker to trade forex, here is the answer. When the brokers were not in the scene, traders literally had to have large sums of money to trade in the forex market in addition to making a good relationship with a bank so that they could trade currencies. With the entry of Forex brokers, these issues got eliminated. Now, all you have to do is open an account with a broker, and you are good to go!
You can trade your preferred currencies and hold them in your forex trading account. Many brokers also teach and provide traders with useful information, materials, research, and training on trade. There are several brokers available nowadays, like Forex.com, IG, CMC Markets, etc. You can choose one as per your requirements and preferences.
How Do Forex Brokers Work?
Forex brokers give you the platform to trade various pairs of currencies at your convenience. Though these services are not absolutely free of cost as a broker charges you with pips. Pips are the amount difference between two currencies on which a forex broker levies its charges.
For example, if you are trading EUR/USD for 1.1100, your broker would add it to 1.1110. That’s the fee that the brokers collect for allowing you to trade through their platforms. Now, if you close and book profit immediately, the broker would charge you on your profit or spread. A spread is a difference between the market price and the price you paid for the trade.
Often traders do not notice such a small spread gap, and thus forex brokers profit with small pips.
A forex broker also allows its trader to access the forex leverage and make profits. Using forex leverage would give you the wings to take more extensive trades, even with a small amount in your forex trading account. For example, if your forex trader gives you 10:1 leverage, it means that if you have $20 in your forex account, you can trade currencies worth $2000. It gives traders more opportunities to earn profits, but at the same time, big amounts mean big profits for the forex broker as well.
Even if you lose your trade, a forex broker will continue to earn profits through the spread of the market price and the amount you paid for the trade. Forex brokers provide you with easy and rapid access to your accounts in return for these fees. All the forex brokers work uniformly and are regulated by the NFA (National Futures Association) in the United States.
The Last Words
Remember, your forex broker is the key to you and your forex trading, thus choose it wisely and opt for credible brokers only.
If you are new to forex trading and don’t want to lose money – Practice! Many brokers provide online practice accounts. You can get your hands on trading and get an idea about your strengths and weaknesses without losing your real money.
You can also learn about the forex market through forex trading courses and reading financial newspapers or research papers. It may seem a little hard initially, but with experience and after a few mistakes, you will learn the deal.