A broker is a company, which carries out the orders of buying and selling currencies of its customers. To participate in the forex market, you must do so through a broker. For this, transfer a certain amount of money to an account in the broker of your choice. Usually the broker will provide you with a platform (software) to view the prices of the currency pairs and place purchase and sale orders. Brokers earn commissions for their services, usually charge a spread on transactions. There are a lot of brokers and there can be a lot of difference between the services they provide. The brokers can be regulated or not. This article can help you when choosing your broker.
Some of the best brokers in the forex market are:
iForex is a broker founded in 1996 that started operating online in 2004. iForex has its main offices in Greece and is regulated by the CySEC , the financial authority of Cyprus, which conforms to the rules of the European Union, as it is a member country of the EU. It allows to operate in:
iForex does not accept customers from the United States, England or Australia.
IQ Option es un broker regulado por la CySEC en Europa. IQ Option es un broker conocido, fundado en 2013. IQ Option tiene una plataforma propia que permite operar con una gran variedad de instrumentos:
Gain Capital is one of the most prestigious brokers. Gain Capital was founded in 1999, and has a broad portfolio of individual and institutional clients. Through its subsidiaries, mainly Forex.com, Gain Capital offers its services to individual investors, while GainCapital.com offers services to institutional investors.
There are others equally known as the previous ones that you can find by clicking on their respective link
Do not confuse the introductory broker, with the broker itself. For more information about the introductory brokers click here. Some features that you should keep in mind when choosing your broker:
Regulation of Brokers
Given that transactions in the forex market are carried out between individuals, it is important to know which entity regulates the activity of the broker.
If the broker is located in the United States, it will be registered in the United States Futures Commission Merchant (FCM). You can check the assets of your broker on the website http://www.cftc.gov/marketreports/financialdataforfcms/index.htm
For example, in October 2009 we can see the data of Easy Forex US LTD, Forex Capital Markets LLC (FXCM), Alpari (US) LLC, Gain Capital Group LLC, Oanda Corporation, among others.
An organization that monitors commodities and futures brokers is the National Futures Association (NFA). This is an association of companies that operate in these markets (not only forex). This organization is self-regulated and, in addition to monitoring these markets, it mediates customer claims with associated companies. The NFA allows access to a database where member information is displayed, this service is called Background Affiliation Status Information Center (BASIC), and we can access it through the address http://www.nfa.futures.org/basicnet/ . Here we can access part of the history of the brokers, which includes summaries of the actions of the NFA as arbitrations and regulatory actions.
If the broker is not in the United States, you can find out which agency regulates your activity. If the broker is regulated by Europe, Australia or Canada, it is a good sign, because these countries have high capital requirements and adequate regulatory regulations.
The fact that a broker is not registered in these organizations, such as the FCM or the NFA, does not necessarily imply that they are less reliable.
Size and type of account
In general, forex brokers offer different types of accounts according to the amount invested. Each of these accounts will have different characteristics. The accounts corresponding to more money invested will offer greater benefits for investors. The differences can be in:
– quality of customer service
– possibility of leverage
Evaluate the brokers taking into account the amount you wish to invest.
Different Spreads according to the Broker
The spread is a fundamental part of the cost of trading, which is why it is essential that you take the spread into account. The spread is the difference between the “ask” price (the one you pay when you buy) and the “bid” price (the one you receive when you sell). The spread is measured in terms of pips, taking into account the size of the lot. Usually, for the same broker, each pair of currencies has different spreads, due to the difference in the liquids of each pair. But spreads also differ among brokers. Additionally, the spread of the same broker may vary over time, also due to the different liquidity. During trading hours of the forex market, spreads may be lower. But there are brokers that offer fixed spreads over time.
Then we have that the spreads may vary:
– between the different brokers
– between the different currency pairs
– in different periods of time
Evaluate the spread of the brokers before deciding with which to operate.
Bonds offered by Brokers.
Some brokers offer bonds from certain investment amounts. The bonds are money to invest in the forex market. For example, if you invest USD 10,000 with a certain broker, the same broker will “give you” USD 1,000 to invest in the forex market.
Leverage offered by the Broker
The possibility of leverage is variable among brokers. For example, one broker can offer 100X leverage while another offers 300X leverage. At the same time, depending on the amount invested, the possibility of leverage may vary. Keep in mind that leverage is a double-edged sword, since it increases the volatility of your performance and can lead to the total loss of a position.
The platform is an element of vital importance for its operations in the forex market. You must operate with a platform that you can trust and with which you feel comfortable. While some brokers allow using platforms such as MetaTrader, others only allow operating through proprietary platforms. Evaluate the platform using a demo account before transferring the money to your broker.
Liquidity of the Broker
The main players in the forex market are the large banks, which form a market called Interbank. Brokers that are not in that group of large banks are called retail brokers. Within the retail brokers, there are brokers that are ECN while others are Market Makers. There are also brokers that are NDD.
The term ECN comes from the Electronic Communication Network, meaning that they are connected to a network of financial agents, from which they obtain liquidity. These agents from which the ECN brokers obtain liquidity can be banks or other brokers connected to the ECN. Spreads of ECN brokers depend on market liquidity, so they are not usually fixed. ECN brokers can generate their income by charging a transaction fee, instead of a spread. Most brokers are not ECN. Examples of ECN brokers are Dukascopy and MBTrading. ECN brokers allow scalping.
Every time you sell or buy a currency pair, there must be someone on the other side who takes the counterpart of the operation, otherwise transactions would not be possible. In the case of Market Makers brokers, they set bid and ask prices. The difference between the bid and ask is the spread that the Market Maker wins. The vast majority of the transactions of a market maker have as counterpart an opposite transaction from a client of the same market maker, but it may happen that in a certain period of time, there are operations that do not have cotrapartidas. In this case, the market maker must be willing to take the counterpart, which is why they are called market makers, which in English means “market makers”. To take these operations, market makers ensure liquidity through agreements with liquidity providers, even though most of the clients’ orders are fitted with opposite orders from other clients.
Brokers market makers earn through the spread, not through commissions. Some market makers are able to achieve execution without slipping, but there are clients of some brokers market makers who complain that, in some cases, their orders are executed with delay, delays that would mean losses for the client and possible profits for the broker.
The subject of the broker is very extensive, here we have simplified what is forex broker, the existing mejroes in the current market, in this blog we will keep giving you all the information related to this wide and millionaire market, we hope that this blog will be of your Whole utility and take advantage of it.
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