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Forex is one of the largest markets in the world, and forex trading is a high-liquidity market. If you are considering getting into forex trading, you will need a forex broker.
But what is a forex broker?
A forex broker is a financial service or platform that allows you to trade foreign exchange on the worldwide market. You can use a forex broker platform to keep track of your trades.
This article defines what a forex broker is, what they do and how you can open a forex brokerage account.
Forex Broker Definition
A forex broker is a financial service that allows you to trade foreign exchange and currency. It acts as the middleman in the forex industry between you and the forex market, allowing you to use the service to make trades for yourself using the platform.
What is the Job of a Forex Broker?
A forex broker’s main role is making trades on behalf of individual investors. You must get a license on your own before you can trade forex with a broker.
If you’re an individual investor, a forex broker will allow you to buy and sell a pair of currencies. Unfortunately, without the forex broker, you cannot trade currency easily.
Brokers make money on fees and commissions.
Examples of Forex Brokers
Now, let’s look at some examples of forex brokers you can use and how you might use them for foreign currency trading. Say you want to trade EUR/USD, which means you are trading U.S. dollars for euros.
First, you can use IG, which lists the current exchange rates. If you want to make a trade, simply put money in your account and use that to make the trade on the platform.
Moreover, you may also use another type of forex broker known as Interactive Brokers. This platform has a lower pip, which means the changes in currency are more accurate.
As a result, you get a more precise trade rate.
Types of Forex Brokers
You will come across two types of forex brokers: dealing desk and no dealing desk forex brokers.
- Dealing desk (DD) forex brokers: The dealer is there to make the trades for the customers, meaning they make deals with the forex market on your behalf.
- No dealing desk (NDD) forex brokers: There is no dealer, meaning you trade directly with the interbank market, which is the forex market.
Regulation of Forex Brokers
The National Futures Association (NFA) regulates forex brokers in the United States. If there are any disputes between you and your broker, the NFA will handle them.
Every forex broker outside of the U.S. should be regulated by a similar agency within their jurisdiction. Choosing an unregulated forex broker is equivalent to putting yourself at risk of fraud or losing your investments.
How to Open a Forex Brokerage Account
Opening a forex brokerage account is easy once you decide which broker you want to open an account with. Once you choose one, you just need to create and fund your account, and you will be trading in no time.
Here are the steps you need to take to open a forex brokerage account:
- Research the top forex brokers – The first step is to find a forex brokerage that you want to use, and you can find the top forex brokers by searching online. We have compiled a list of the top online forex brokers for you to consider.
- Find out if it is regulated – Next, you must ensure that either the NFA or a similar organization regulates the forex brokerages that you are considering. You are not protected from disputes and fraud if you do not use a regulated forex broker.
- Compare commissions and fees – Forex brokerages make money on commissions and fees, which are typically charged as a percentage of each trade. You want to find a forex broker with a low commission so you are not losing too much money on each trade you make.
- Decide on a forex broker – Next, you need to pick one of the forex brokers you are interested in after considering the broker’s commission and fees.
- Create an account – Once you choose your broker, simply make a forex trading account on their website. The homepage will give you the option to enter your information and view your trading platform once you complete the sign-up process.
- Fund the account – You will then have to fund money into your forex account from various financial institutions, which you will use to make your trades. You can also use your account to transfer your earnings to your bank account from forex trading platforms.
- Start trading forex – Finally, you are ready to start trading forex. Remember, you are trading real money, and currency markets are volatile. So, familiarize yourself with the market before you trade substantial amounts.
3 Best Forex Brokers
Plenty of forex brokers are available online, but below are the top three Forex Brokers.
1. IG – IG is great for new and experienced traders thanks to its competitive costs, easy-to-use trading platform and app and educational articles about trading and managing risk with forex.
The platform has more than 80 currency pairs available to trade, starting at just 0.8 pips.
2. FOREX.com – Similar to IG, there are over 80 currency pairs, including USD, EUR, GBP and JPY, that you can trade here. However, they have a lower pip, starting at just 0.2 for the EUR/USD spread, which is one of the main currency pairs.
3. Interactive Brokers – Number three is Interactive Brokers, which offers many options for trading, including forex. It offers low commissions that start at $0 and low financing rates. It has been named the best broker for low-cost investing and the best online broker.
Should I Use a Forex Broker?
A forex broker is necessary if you want to start trading, and making a decision based on research is important. You will have to pay commissions to your broker, but in return, they will provide you with educational resources, currency pairs and more.
Ready to get started with forex trading? Follow the steps outlined above.
Forex Broker FAQs
Do you need a broker for forex trading?
You need a broker for forex trading. You will use them to track your trades and investments.
How do forex brokers make money?
Forex brokers will collect a commission on every trade or spread. You should find a broker with a low enough commission that you are not losing too much money to them, but high enough that they are providing you with the best services as your broker.
What is the difference between a forex broker and a forex trader?
A forex broker is a platform that enables you to do forex trading independently. Forex traders will analyze your portfolio and the market and trade for you.