Brokerage Firms – Forex Academy

Introduction

Choosing the right broker is a vital point to consider, as all your transactions such as deposition, withdrawal, opening a position happen in this corner. In the present world, the competition between the retail brokers is so high that it can take a lot of hard work to determine the right broker of your choice.

So, in this lesson, we will discuss some of the most critical criteria you consider before opening an account with a broker.

📍 Security

Security can be considered as the most important criterion to choose a broker. Since traders will be playing around with their money here, it is necessary to make sure that the broker is genuine and trustworthy.

Checking the credibility of the broker is pretty simple, as there are regulatory agencies that disclose the trustworthiness of a broker. So, if a broker is registered with any of these agencies, we can consider the broker to be genuine and secure.

For your reference, some of the regulatory agencies are given below.

National Futures Association and Commodity Futures Trading Commission, in the US
Prudential Regulation Authority and Financial Conduct Authority, in the UK
Swiss Federal Banking Commission, in Switzerland
Australian Securities and Investment Commission in Australia
Investment Information Regulatory Organization of Canada, in Canada
Financial Conduct Authority, in the UK
Cyprus Securities and Exchange Commission, in Cyprus

📍 Types of Fee levied

Many brokers claim that they do not charge any fee other than the spread. However, some brokers do charge different types of fees from the clients, such as brokerage fees, commission fees, daily rollover interest, etc. Therefore, one must verify with the broker on what all charges are imposed by them.

📍 Margin trading

This is no doubt the best feature provided by the forex brokers. Margin trading is the facility provided by the brokers where a trader can open larger positions with a lesser amount. Different brokers provide different margins. So, one must choose their broker by considering the margin provision and also by keeping the risk factor in mind.

📍 Deposit and Withdrawal

It is essential to choose brokers who provide a user-friendly, swift, and fast feature to process the deposits and withdraws. One should check the withdrawal policies of the broker before signing up with them. Because this is where most of the brokers have their hidden costs or undisclosed withdrawal limits.

📍 Trade execution

The trading software must be such that the orders are filled at the best available prices. This is an important factor for scalpers to consider, as every micro pip has significance.

📍 Trading platform

The trading platform also plays a vital role while choosing a broker. For a novice trader, if the UI of the trading platform is not user-friendly, it can become quite challenging for them to place and manage trades. Also, the presence of trading tools and indicators is necessary for professional traders. Hence, one should make sure that the broker meets all your requirements and specifications.

Therefore, considering the above points can definitely help you fetch a good broker for you to trade the forex market.

[wp_quiz id=”55229″]

Brief History

The economy of all the nations after the end of World War II was at stake. Not a single country saw a growth in its economy during this period. So, there had to be someone to fix this all up. Hence, the major Western banks stepped in to strengthen and stabilize the economy on a global scale. They established the well-known Bretton Woods System, which got Gold into focus, as it got paired with/against the US dollar and other currencies. This system did bring the economy to balance to some extent but slowly started becoming inefficient and outdated as the major countries began to expand at a good rate.

With this under consideration, the system was abolished and was replaced by a much efficient system for the valuation of currencies. Precisely, this system was called the free-floating type system, where currency exchange rates were determined by supply and demand factors. During the final decade of the 20th century, the internet came into existence. This brought drastic changes in the way how trading in the markets works. With the facility of internet, the banks came up with their own trading platforms, and these platforms enabled traders to keep a watch on the live quotes of the currencies and also provided smooth and swift execution of trades.

Taking this forward, as the market began to grow substantially, the so-called ‘retail brokers’ made their entry to the market. With these brokerages, traders with small capital could also participate in the market. Moreover, retail brokers even offered great leverage for trading, which attracted more traders to take part in the market.

Retail Forex Brokers

Retail forex brokers are intermediaries who facilitate transactions between buyers and sellers. Based on how clients’ are fulfilled, brokers are of two types, namely, Market Makers and Electronic Communication Networks.

Market Makers

As the name pretty much suggests, these brokers ‘make’ the market. A market maker acts as a bookie who takes the opposite side of its customers’ trades. So, basically, the trades here are between a retail trader and the broker. Since the broker takes the opposite position of his customers, he is actually trading against them. In layman terms, market makers need losers to profit from. Trading with this kind of brokers, customers don’t really reach the real market, as they’re placing bets on the quotes provided by the broker.

Electronic Communication Network

Trading with an ECN broker is different from that of market makers. Here, the interest of the customer is aligned with that of the broker. An ECN broker passes on its customers’ orders through to liquidity providers or the interbank market. So, unlike the case of market makers, their trades are actually matched with the real market. And as far as revenue of these brokers is concerned, they always make a profit from the spreads (bid/ask price) or trading fees. Since they connect the clients to deal with the interbank market, they form the network where communication takes place electronically.

That’s about the introduction to Forex brokers. Take the below quiz to know if you have understood the lesson correctly.

[wp_quiz id=”48281″]