If you are a beginner at forex trading, you’ve probably come across numerous articles and materials about forex brokers. What are forex brokers and why do you need them? A broker’s main role is to act as a connection between you and the network of banks trading with one another. Brokers usually deal with several banks that offer different pricing on their currencies. Then, they choose the best pricing option and offer it to their clients.
What are the functions of a broker?
- acts as an adviser who gives essential information to help you make a profit from forex trading, such as recommendations on which trades to make
- handles foreign currency transactions everyday and keeps himself/herself informed about the necessary data that may affect the value of the currencies
- provides the “execution only,” or basic service, where the client can use the broker’s trading platform but the broker doesn’t provide any advice and the client has to make decisions and trades on his own
- provides other types of services, such as advising clients on which trades to make
- can also make trades for the client, based on the client’s authorization
What are the licensing requirements of brokers?
The internet and technological advances have made it easy to find brokers. However, not all of them are trustworthy. This is why there are regulation measures to ensure that all transactions are transparent and to reduce the possibility of fraud.
In the U.S., the main regulatory bodies are the Security and Exchange Commission (SEC), the National Futures Association (NFA), and the Commodity Futures Trading Commission (CFTC).Check whether your potential broker is licensed with these agencies before you sign up.
What are the other qualities that you need to look for in a good broker?
A good broker must always be available whenever you need advice or recommendations. In most cases, forex brokerage firms provide 24/7 support to their clients. Check if the broker you are looking to sign up with provides this service. A good broker must also ensure their clients’ protection against fraud and scam by using the latest security measures.
What are the steps in opening a forex trading account?
Opening a forex trading account is similar to opening an account with a bank. First, you need to choose the type of account you want. Then, you need to submit the necessary paperwork. This varies depending on the broker and they will usually send you the list of forms that you need to fill out and submit.
After the broker has received the requirements, your account will be activated and you can start trading.
Even if you’ve found a legitimate brokerage firm who has been very helpful in assisting you learn the ropes of trading, it is not enough to leave all the work to them.
It is your responsibility to keep yourself informed about the technology and trends in the forex market because knowledge is still your best protection against dishonest individuals and unscrupulous forex brokers.