What is a Forex Broker?

A forex brokerage is an entity that connects retail forex traders with the forex market. The Forex market is traded on the “interbank” which is a fancy way of saying banks trade electronically with each other at various prices that may change from bank to bank.

A forex trading account is something like a bank account where you can purchase currencies and hold them. Currencies are specifically purchased in pairs. If you buy the EUR/USD, you are holding for the US Dollar to become worthless per Euro over time. The Euro must become worth more money in dollars for you to make a profit.

A forex brokerage offers you a way to get into the mix with the banking network and purchase a currency pair to hold in an easy manner. Before there were forex brokers, people wishing to trade in foreign currency needed to have a large amount of money and a special relationship with a bank to buy foreign currencies.

Forex brokers make their money by taking a slice of the pie when you make a trade. The change in the relationship between two currencies in a pair is measured in pips. When you make a trade the forex broker charges you a few pips before actually putting your trade on the market. The market might be trading at 1.3100 EUR/USD as a buying price, and when you enter your trade, the broker may put you in at 1.3102. If you immediately close your trade, the forex broker collects the profit between the “market price” and the price you paid.

This is called the spread.

You might wonder why the forex broker would pick such a small item to make money on. The easy answer is that most people don’t think about a few pips of difference when they are trading. This makes the fee feel “transparent.” The way a forex brokerage makes money is that they allow you access to forex leverage. When you use leverage, you can control a larger amount on the market than what you have in your account. If you are trading 10:1, you can control $1000 on the market with only $10 in your account.

Not only does this increase your chance for profit (or loss), but it also makes each pip worth significantly more money, which makes the spread you pay worth more money.

Whether you win or lose while trading, the forex broker will continue to make a profit on the difference between what you pay, and the actual “market price” that they are paying. The main job of a forex brokerage is to provide you easy access to the forex trading market and make some money in the process. Many of them will even help you learn a bit about how to trade. There are many forex trading brokerages out there, some big, some small, but they all work in a similar fashion.

Regulators

Financial markets need to be honest, fair and effective so that consumers get a fair deal.

Regulators aim to make markets work well – for individuals, for business, large and small, and for the economy as a whole.

In United Kingdom Financial Conduct authority do this by regulating the conduct of more than 59,000 businesses. They are also the prudential regulator for more than 18,000 of these businesses.

The Prudential Regulation Authority (PRA) is the prudential regulator of around 1,500 banks, building societies, credit unions, insurers and major investment firms. As a prudential regulator, it has a general objective to promote the safety and soundness of the firms it regulates.

FCA established on 1 April 2013, taking over responsibility for conduct and relevant prudential regulation from the Financial Services Authority.

Regulators are responsible for regulating a sector which plays a critical role in the lives of everyone and without which the modern economy could not function. From children’s ISAs to pensions, direct debits to credit cards, loans to investments – how well financial markets work has a fundamental impact on us all.

Alone UK financial services employ over 2.2 million people and contribute £65.6bn in tax to the UK economy. If UK markets work well, competitively and fairly they benefit customers, staff and shareholders, and maintain confidence in the UK as a major global financial hub. FCA role is to help ensure this happens.

How Regulator work

Regulator strategic objective is to ensure that the relevant markets function well and our operational objectives are to:

protect consumers – we secure an appropriate degree of protection for consumers
protect financial markets – we protect and enhance the integrity of the UK financial system
promote competition – we promote effective competition in the interests of consumers
Most of regulators are an independent public body funded entirely by the firms they regulate, by charging them fees. They are accountable to the Treasury, which is responsible for the country’ financial system, and to Parliament.

Specially FCA’s work and purpose is defined by the Financial Services and Markets Act 2000 (FSMA). We work with consumer groups, trade associations and professional bodies, domestic regulators, EU legislators and a wide range of other stakeholders. With this extensive remit, we use a proportionate approach to regulation, prioritising the areas and firms that pose a higher risk to our objectives.

List of some regulators:

Australia : Australian Securities and Investments Commission(ASIC)
Bangladesh : Securities and Exchange Commission (Bangladesh)
Belgium : Financial Services and Markets Authority (FSMA – Autorité des services et marchés financiers/Authoriteit voor Financiële Diensten en Markten)
China : China Securities Regulatory Commission (CSRC)
Cyprus : Cyprus Securities and Exchange Commission (CYSEC)
Egypt – Financial Regulatory Authority
European Union : European Securities and Markets Authority (ESMA)
Hong Kong : Hong Kong Securities and Futures Commission (SFC)
India : Securities and Exchange Board of India (SEBI)
Indonesian: Financial Services Authority (Indonesia) (Indonesian: Otoritas Jasa Keuangan) (OJK)
Kuwait : Capital Markets Authority Kuwait (CMA) (هيئة أسواق المال – دولة الكويت in Arabic)
Malaysia  : Securities Commission Malaysia (SC)
New Zealand – Financial Markets Authority (New Zealand)
Qatar – Qatar Financial Markets Authority (QFMA)
Saudi Arabia : Capital Market Authority (Saudi Arabia) (CMA) (هيئة السوق المالية in Arabic) Singapore – Monetary Authority of Singapore (MAS)
Sri Lanka :Securities and Exchange Commission of Sri Lanka
Switzerland : Swiss Financial Market Supervisory Authority
Turkey  : Capital Markets Board of Turkey (CMB)
Abu Dhabi Global Market – Financial Services Regulatory Authority – (FSRA)
United Arab Emirates (Dubai) – Dubai Financial Services Authority – (DFSA)
UK: Financial Conduct Authority (FCA)
USA: National Futures Association (NFA)[

         
Securities and Exchange Commission

If you are searching for a forex broker, find regulated Forex brokers from above mentioned regulator list. Take your time, open a forex demo account with each broker you’re interested in and try them out for a while. If you plan on continuously trading forex, you need a reliable forex brokerage to work with.

If you are new to forex trading, take time to get a forex trading education and learn a bit about what you’re doing. Forex trading is not hard, but it feels hard early on in the learning process. With a little patience and persistence, anyone can learn how to do it.

Forex brokers are firms that provide traders with access to a platform that allows them to buy and sell foreign currencies. Transactions in this market are always between a pair of two different currencies, so forex traders either buy or sell the particular pair they want to trade.

Forex brokers may also know be as a retail forex broker, or currency trading brokers. Most forex broker firms handle only a very small portion of the volume of the overall foreign exchange market. Retail currency traders use these brokers to gain access to the 24-hour currency market for purposes of speculation. Forex broker services are also provided for institutional clients by larger firms such as investment banks.

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. Clients could phone in their orders of trades, and brokers would buy and sell assets on behalf of their client’s accounts for a percentage-based commission.

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). Nowadays, the term “broker” is often used as shorthand for a brokerage.

Retail Forex

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. These firms are also known by the term “retail aggregators.” Retail forex trading began to become popularised in the late 1990s with the emergence of internet-based financial trading. 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.[3]

Brokers And Dealers

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. Before the emergence of retail forex brokerages, individual trading amounts less than US$1 million were discouraged from entering the market by high bid-ask spreads.

Around the year 2000, 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. Because the trade volumes were much larger, participants in the interdealer market were willing to provide liquidity for the retail brokers’ accessible prices. 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.

Dealing Desk

Typically, retail forex traders can only access the market through a broker. However, forex brokers often offer two modalities of trading.

The first is “dealing-desk” trading, where brokers act as dealers and take the opposite position of a trader. Traders may pay larger spreads on average in such trades, and orders can be filled on a discretionary basis by the broker.
The other type of service is “no dealing desk” trading. 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.
Other Services Offered By Brokers
In addition to helping clients buy and sell assets, brokers often offer other related auxiliary services. These can include the following:

information and news feeds and research services,
asset price charting,
trainer trading programs and advice
and professionally managed accounts.
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. Since they began operations in the retail market, brokers have helped open up a field of opportunity that previously wasn’t available to individual 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.

Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. Forex Lanes preffered brokers will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.