In the foreign exchange market, a broker plays the role of an intermediary between investors and currency markets. A foreign exchange broker is a company or individual with responsibility for providing information or investors in real-time on the market and giving their orders to the foreign exchange market.
What forex brokers do?
Basically, a company that provides services as a foreign exchange broker helps traders and investors connected with currency trading. The company supply updates about what happens in the foreign exchange market such as market conditions, conversion rates, etc. In addition, brokers can also offer services as trading platforms for traders.
FOREX broker type
In general for retail trade, there are two types of forex brokers, an investor can choose to cooperate with: electronic communication networks and market makers. Both types have different characteristics and suitable for various types of investors.
– Electronic Communication Network (ECN)
ECN provides direct access to the interbank market. However, this type requires investors to spend larger deposits as a starter. Therefore this broker is rather not suitable for beginner investors or individual traders with a low budget.
– Market maker
Market makers often work as parties against parties to facilitate their client transactions. Marketmakers are friendly for investors with low budgets or those who start learning how to trade currencies. Sekecil deposit, there is a market maker out there that allows active traders in the foreign exchange market with only $ 1 in their account.
How do they make a profit?
Forex brokers usually don’t make money from trading their clients’ currency. Instead, they benefit from the spread of bids / questions. However, ECN makers and markets have different ways to generate profits. ECN collects commission fees from their clients and gets greater profits when clients increase their deposits in your account. Marketmakers, on the other hand, make money from losses of their clients. As a counter-natural party to his clients, market makers get profit when clients lose money.
How to Detect Shady Forex Brokers
Not all forex brokers are honest. Some of them also have a manipulative tendency to benefit greater than their clients. You need to increase your red warning when you find a broker with such characteristics:
– Their promises are too good to be true. Beware if the company offers a fast and easy way to make money from forex trading. Such advertising might direct you in the wrong direction.
– Brokers ask you to transfer cash by mail, internet, or through other ways. Very unusual for brokers to ask for money transferred to their personal account during currency trade cooperation.
– It’s hard to get a company profile. Before deciding the right broker to use, investors often conduct background checks to get guarantees on company achievements and track records. If it is difficult to find a company profile online or directly from the broker, it is possible that they cannot be relied upon as seen.
– They do not take written risk disclosure statements or other security measurements seriously. Instead of showing that these documents are needed for the cooperation, they may say that these documents are only routine formalities needed by the government.