Have you ever seen a buzzing crowd of businessmen picking up phones and shouting calls on a foreign exchange trading floor? Those men are collective of Forex broker actively helping traders to allocate capitals and execute market orders. Eventually, with their helps, each trader can potentially make profits.
What's A Forex Broker And Why You Need Them ?
Traditionally, a trading lot in foreign exchange market required approximately 100,000 unit of base currency to effectively pass a market. For example, a single lot in GBP/USD (Poundsterling/US dollar) is equal to £100,000.
Therefore, only traders with high capital and large investment bank can join in. That is where a Forex broker comes into play. Forex Broker can help an average retail trader to enter Forex trading with leverage. In its essence, a leverage is a system where Forex broker may "leash" a trading lot for a margin.
This is how leverage works:
Thomas got only $10,000 and he's short $90,000 (out of 100,000 base currency) to pass a single lot in USD/JPY. In short, he needs a Forex broker to lend him enough money.
Thomas found a Forex broker that offered him 1:50 leverage. Without hesitation, Thomas took that offer. Now, he can trade under 2% margin of the original lot, that's equal to $2,000. Effectively, he's left with remaining $8,000 to be traded in Forex market until it hits margin call.
TLDR; If you're not rich-blooded like Warren Buffet, you'll need a Forex broker to lend you enough money to play Forex YOLO games
Everything You Need to Know about Trading with A Forex Broker
You may start online trading with just about any Forex broker. However, if you want to actually profit, you have to carefully select them. In order to do so, you need to check all these things:
A. Check their identity and legitimacy
The first thing to come in mind is the quality of your select Forex Broker. Needless to say, the quality of a forex broker is directly linked to how they are regulated and from where they operates.
By the way, do you know that a shady forex broker can operate in an offshore island without any clear regulation? Yes, it's true and that's the dark truth in Forex market reality, be wary my friends! Shall you be tempted with their overly unrealistic offering, we're here to wake you up!
To avoid those trap, you need to scrutinize the "legit-ness" of your broker. Go Ahead, find answer for these questions:
- "Where's their headquarter? Is the address written on their website actually refer to actual place?" Yup, you need to find their actual address. If you can't locate it via internet global map, most likely it's a fake address.
- "Who regulates them? Are they under jurisdiction of a regulatory body?" A good, legit forex broker will be regulated under a legal regulator. Some of which are; NFA and CFTC for North America region, FCA for UK, ASIC for Australia, or CySec for Cyprus.
- "To whom shall I send my complaints or questions? Can I get satisfactory answer?" By norms,a brokerage provides customer service or sort to answer all your question. If the answer is satisfactory to you, it's a good sign to start trading with them.
B. Examine their trading term and condition
If you want consistent profits from your trading positions, you have to make sure that your Forex broker is playing fair. Simply put, check their trading term and conditions before opening a live account.
We know it's not easy to understand wall of text imposed by your broker to hide their true intention. But fret not, we'll make it simple here!
Step one, check their market model!
Market model is how a Forex broker transmit your trading request to target market. For instance, a good bonafide Forex broker will transmit your market order through STP or ECN network without any intervention (i.e., no re-quote).
Step two, check their trading costs! There's multiple way a Forex broker can charge you for their service. Most of them comes down to spreads and commissions. Therefore, make sure you can get them as low as possible!
Step three, read more info below!
C. What do they offer?
Well, of course it's all boils down to what the Forex broker offers to you. However, you need to check how sensible and realistic those offers are if you don't want to fall into a trap. As a beginner it's very common for you to get lured by fantastic offers, such as super high leverage above 1:50, commission-free accounts or even bonus deposits!
Think again! CFTC and NFA heavily imposed strict rule on leverage and bonus deposits for a reason! One such reason is risk of over trading and trading under limited margin. In other words, broker basically lends you a huge amount of money to lure you to trade like blind, hungry rats! And guess what, the rats got depraved and the broker pocketed your loss as profit!
We do understand that you as retail trader, only possess limited capital. But, don't make it a reason to engage over trading with irresponsible Forex broker. Instead, pick a fair and reliable Forex broker with realistic offers for their leverage! Remember, trade with fair Forex broker and win like a boss!
D. How do Foreign Exchange Broker maintain their customer?
This is arguably the most important thing to note. A good broker will not rob you blind and leave you like a rag once they done with you! So, the big question eventually comes down to this, "how do a good Forex Broker maintain sustainable relationship with their clients a.k.a you?"
Good question really, but too many times we've heard so many scams and bad news of them... Fret not! Good Forex broker actually exist and they do have clients with lasting relationships for years and years to come. You may check one of our reviewed brokers here.