Generally, when you start on the foreign exchange market, you know that you have to find a good broker to trade with. However, it is often not known what it is really for. To help you see more clearly, today, we invite you to understand the role of the latter and the importance of choosing the right broker.
Broker as a link with the Financial Markets
To put it simply, a brokerage represents a touch base between you and the market. More precisely, its’ an intermediary between the trader and the inter-bank market (network of banks). It must allow traders and clients to benefit from the best buying and selling prices provided by the banks with which it works.
These transactions executes via a trading account that we open with the broker with which we sign. Once the latter has been administratively validate, traders can take full advantage of the market, invest, earn money and, of course, withdraw earnings. Usually, to get familiar with trading, to test new strategies, etc. Without risking real money, brokers provide training on demo accounts.
Benefit from leverage
Forex brokers may also provide their clients with an interesting tool called leverage. Leverage allows traders to gain a better starting position. Its amount varies depending on the trading account type opened. Generally, it is 10: 1 and can go up to 500: 1 with some Forex brokers. For instance, with $ 1 and leverage of 500: 1, a trader can take the position of up to $ 500. Be careful when using this tool. If it multiplies the wins, it does the same with the losses.
Forex brokers get paid for their financial services thanks to spreads. When a trader takes position n the market, the broker offers a price slightly different from the best market price obtained from their inter-bank network. The spread is that difference. It varies among brokers, so be sure to check out benchmarks before you start with a broker.
The advantages of a regulated Forex broker
A regulated broker is a recognized member of an official regulatory body. It means that the broker must comply with the required trading rules to be able to launch the business. To become a regulated Forex broker, the brokerage company must meet the basic criteria and legal requirements. Regulated Forex brokers ought to submit their financial reports and provide full information to their clients: risks, pricing conditions, trading hours, customer service.
You will always have the assurance of working with a broker who must regularly report to an external and independent body. In addition, in the event of an unresolved problem with the broker; you will always be able to contact the regulator about your problem. Finally, some regulations even offer a financial guarantee.
If the broker should no longer meet the require standards, it could simply be blacklist! Finding a regulated broker means you are protected from the fraud and adversities of entrusting your money to shady companies. In that way, you spare yourself from being disappoint by online trading before even making your first gains.