A forex broker is an international financial institution that offers traders access to a central platform for trading foreign currencies. Forex is usually shortened for foreign exchange. Transactions in the free marketplace are usually between two different currencies except for a few major world currencies, which are the U. S. dollar and the Eurodollar.
There are also other international currencies available for trading, which are not traded on the major exchanges. These include the Australian Dollar, the Canadian dollar, Swiss franc, Japanese yen, pound Sterling, and the Eurodollar. The price of these currencies will fluctuate based on the current demand and supply of the currencies involved. To help provide information about the available trading platforms, forex brokers will offer information on the spreads they offer.
Spreads are fees brokers charge to provide their services. These are included in the commission, the trader pays the broker. Forex traders will pay commission on any one trade they make and may also be liable for other trading charges. The spread can vary from as little as a penny per trade to as much as 5 pips. It is important that traders know the spread and how it will affect their trading; especially when they begin to enter large volume trades.
Another aspect of trading that requires consideration is the interbank market. Forex brokers with zar accounts have relationships with individual banks that provide them with access to commercial lines of credit. These banks are not necessarily trading operations themselves but rather as information providers to the forex broker providing them with ready cash. A good forex broker will always check with their interbank partners before providing any information to clients.
Forex brokers are also required to register with the regulatory bodies in each state where they operate. These brokers must follow strict guidelines set down by the regulatory bodies to remain in business. While there may be no government controls in place at present, this is likely to change shortly as governments from around the world begin to take more control over the currency markets. Regulation will ensure that brokers continue to provide quality service to their clients.
As mentioned earlier, the types of Forex brokers are vast and diverse. Many are global full-service firms, while others specialize in only one region or even just one country. When considering top picks, the most important factor is the quality and reputation of the firm. For those traders who trade frequently, this factor is probably not enough to separate one firm from another. For those who tend to trade infrequently, the quality of service provided should be the most important factor when making a decision.
