Forex

A broker is an entity in the foreign exchange market who acts as an intermediary between banks, buyers and sellers. The broker is paid a commission which is may be paid by the initiator of the forex trade or by both parties. In the forex market there are four or five major global brokers who execute their business through a range of subsidiaries, affiliates and partners. Online brokerage houses allow execution of a trade without any manual intervention.

As a trader it is important to understand the various requirements that a particular brokerage may have in terms of margin, leverage and liquidity. If a trader’s margin falls below the required amount a broker can liquidate all or any of the trades placed by the trader.

The broker displays the currency prices on their screens to enable traders to place their trades. Different brokers have different display formats but the general pattern is the “BID” price on the bottom and the “OFFER” on top. Brokers normally use spread-based trading for traders. The spread is also the compensation which the broker receives for being the market-maker.

Trading forex has become simple with online brokerage houses enabling a 2 step process for executing a trade. The two steps in executing a trade are specifying the amount and placing the “Buy” or “Sell” order. Brokers help traders with other important aspects of the trade such as placing “Limit Orders” and “Mark to Market” calculations. They also apply the rollover rates when a trade is carried over past the change in value date. As an intermediary who facilitates trade a good broker can go a long way in maximizing the trader’s profit.