A forex broker, also known as a retail forex broker, or currency trading broker, in modern financial and commercial trading means an intermediary who buys and sells a particular asset or assets for a commission.
Thus, a broker may be thought of as a salesman of financial assets. The origin of the term is unclear, though it is thought to stem from old French. The role of the broker has commonly been found in equities, commodities , derivatives and even insurance and real estate markets since the beginning of the modern era. And until the dawn of the internet age, most brokers operated by phone. With the advent of the internet, many brokers have allowed their clients to access accounts and trade through electronic platforms and computer applications.
A broker in the past was considered an individual member of a profession and often worked at a special agency known as a brokerage house or simply a brokerage. A key concept for modern individual traders is retail forex. Traditionally, foreign exchange has been traded on the interbank market by larger clients such as importers, exporters, banks and multinational corporations who need to trade currencies for commercial purposes and hedging against international currency risks.
Retail forex is forex that is traded through dealers, often by smaller or individual investors. At that time, retail forex brokers and dealers went into business to allow smaller traders to get into markets that were previously limited to large-scale businesses and financial institutions.
Retail forex brokers typically allow traders to set up an account with a limited amount of assets and let them trade online through internet-based trading platforms. Most trading is done via the spot currency market, though some brokers deal in derivative products such as futures and options. Forex trading has been popularised among individual traders because brokers have offered them the chance to trade with margin accounts.
These allow traders to effectively borrow capital to make a trade, and multiply the principal that they use to trade by large amounts, up to 50 times their initial capital. Most retail forex brokerages act in the role of dealers, often taking the other side of a trade in order to provide liquidity for traders. Brokers make money with this activity by charging a small fee through a bid-ask spread. Around the year , retail brokers began offering online accounts to private investors, streaming prices from major banks and the Electronic Broking Services EBS system.
The brokerages were able to provide retail service by bundling many small trades together and negotiating them in the interdealer market, which is dominated by banks.
Bid-ask spreads are generally higher for retail customers than they are in the interdealer market, but they have been found to narrow as trading volume rises. Typically, retail forex traders can only access the market through a broker.
However, forex brokers often offer two modalities of trading. In addition to helping clients buy and sell assets, brokers often offer other related auxiliary services.
These can include the following:. Forex brokers offer an essential service for markets, especially for retail forex traders. With an internet connection and a computer or mobile phone, traders can now open an account and trade in a market that was previously only accessible to banks, large companies and financial institutions, and very wealthy individuals. Brokers also offer services that can be valuable in assisting traders to understand price movements and potentially make profits.
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Due to the certain restrictions imposed by the local law and regulation, German resident retail client s could sustain a total loss of deposited funds but are not subject to subsequent payment obligations beyond the deposited funds. Be aware and fully understand all risks associated with the market and trading. Limited, any affiliates of aforementioned firms, or other firms within the FXCM group of companies [collectively the "FXCM Group"], carefully consider your financial situation and experience level.
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Traders may pay larger spreads on average in such trades, and orders can be filled on a discretionary basis by the broker. Traders are given direct access to the interdealer market, but they may be charged a fee for this service. They also could be exposed to wider variable spreads on occasion, depending on market conditions. These can include the following: Some of these services may be offered for free and others may involve the payment of a fee.
Summary Forex brokers offer an essential service for markets, especially for retail forex traders. Past Performance is not an indicator of future results. Retrieved 09 February https: Retrieved 09 February http:More...