Foreign exchange brokers are financial service companies that provide customers with platforms where they can buy and sell foreign exchange currencies. A broker plays the role of a bridge between retail speculators and the foreign exchange market. There are thousands of brokers available at the touch of our fingertips, however the choice of a broker is not something that should be underestimated.
Firstly, each broker offers certain tools and services to aid their clients in the journey of forex trading. Some brokers have their own trading platforms, whether it is a website or an app that can be downloaded on a smartphone. Other brokers might only grant access to trading through more commonly used platforms, such as MetaTrader 4 and MetaTrader 5. These platforms are predominantly used to execute trades, but they can also be utilized to analyze price movements on a chart. The choice of a trading platform often comes down to personal preferences and doesn’t have a major impact on the performance of a trader, however there are more important factors that should be considered when selecting a broker.
The main aspect that differentiates brokers is regulation. There are multiple regulatory bodies in the foreign exchange market. Their main purpose is to prevent fraudulent activity from occurring in the foreign exchange market. The regulatory body withholds standards and regulations in the market. A regulated broker could get audited, have legal action taken against them, and even lose the validity of their license as a broker. This implies that regulated brokers will not risk losing their license and reputation by taking part in shady activities, so they are more secure and reliable. The fraudulent activity mentioned above might include price manipulation, spread manipulation, withdrawal barriers, and many other unpleasant experiences that a trader does not want to face. Brokers are compensated for their services in the form of spreads and commissions. Commissions are minor fees that are taken from a customer’s trading account every time they execute a trade. These fees are proportional to the volume of a position. Spreads will be thoroughly explained in succeeding lessons.