Forex Brokers – What You Must Know

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?


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.

Forex Trading Tutorial: How to Prepare for the Trade

Beginners usually look to forex trading tutorials because the idea of trading in the forex market can be daunting. This is especially true if you have no background in finance, accounting, or economics. However, you don’t need to go back to college to be fully equipped to tackle forex trading.

Learn how to talk the talk

Here are the basic terms that you need to be familiar with:

Exchange Rate or Quote

The quote records the value of one currency in terms of another. It is composed of two parts: the pairs and the rate. The base currency (on the left) and the counter currency (on the right) comprises a pair. The exchange rate determines how many units of the counter currency are needed to purchase one unit of the base currency.

For instance, the quote is EUR/USD = 1.2316. This means that you need 1.2316 USD to buy 1 Euro.


The percentage in point (Pip) represents the basic unit of profit. It is the smallest change in a given exchange rate as it is usually the change in the last decimal point of currencies. Most currencies are written with up to four decimal points except the JPY.

If the exchange rate is 1.2316 (EUR/USD) and it changes to 1.2320, the price ratio increased by 4 pips.


The spread is the amount of pips between the asking price and the bidding price. If the bid/buy price for EUR/USD pair is 1.2316 and the ask/sell price is 1.2319, the spread is 3 pips.

Brokers use the spread to earn on every trade. Say a trader is paying 1.230 for buying and selling, he may sell the currency for 1.231 or buy it for 1.229. Either way, the trader will make a profit from the trade.

Walk before you run

Many reputable forex brokers will offer a practice or demo account where you can invest your “money” in the market so you get a feel of what trading is like. You can open different accounts and try different trading schemes. This way, you’ll know which strategy would work for you when you are ready to trade for real.

Start running (slowly)

In forex trading, and indeed in other forms of trading, it’s always better to start with money you can afford to live without. If you lost that amount, it won’t be such a difficult pill to swallow.

Use a strategy you are most familiar and successful with and start trading.

Keep learning even when you’re already trading. Be on the lookout for opportunities to gain understanding of the changing trends and trading strategies. Ask other traders for advice and do your own research.

Above all, trade with a clear and level head. Heightened emotions and greed can drive you to make costly mistakes that are difficult to recover from.

These are the steps to help you get started on forex trading. If you know someone who has experience in the trading business, don’t hesitate to ask them for help. After all, you’ll need more than just a forex trading tutorial to be ready for the real thing.

Forex Trading Scams – How To Avoid Them

In currency trading, you can watch out for certain indicators to protect yourself from forex trading scams. Many brokers are after unsuspecting traders, especially the beginners, to cheat them out of their money. The following are promises that unscrupulous brokers make to deceive their victims:

  • We offer 100% risk-free forex trading.

There is no such thing. Even if the broker promised you that there is only minimum risk, don’t take the bait. Forex trading is volatile and the only thing guaranteed is that there is no guarantee.

  • We guarantee that you’ll earn huge profits on your investment.

Again, because of the unstable nature of forex trading, your earnings can never be ensured and brokers who say so would be lying to their clients.

  • We’ll take care of everything. You don’t even have to contact us. Just provide us with your details and we’ll get in touch with you.

Reputable brokers have websites and even 24/7 support so you can contact them if you have questions or if you need their advice. Constant contact with your broker is also important especially when you need to make withdrawals from your account. If a firm is reluctant to give an address or contact information or if their offices are out of the country, then they may just be out for your money.

How can you avoid forex trading scams?

Always perform a background check on the brokers you plan to do business with. First, you can verify whether they are licensed trading companies if they are registered with the SEC, the NFA, and the CFTC. These regulatory bodies usually have strict guidelines that firms need to meet before they can receive their licenses.

You should also check the complaints from current and past clients. You can find some of these pieces of information in reviews and forums online. Still, you need to verify whether the complaints are valid or if they are just retaliatory acts of disgruntled individuals before you make your decision.

Make sure that you can easily withdraw your funds. Simply put, you must have access to your account if you need to. This is where you need to be especially careful because most forex brokers involved in scams receive complaints from traders who were unable to withdraw their money.