Read on to find out more…
A forex brokerage is a body, such as Sucden Financial, that connects forex traders with the market.
The market itself is traded on a platform known as the ‘interbank’, which allows banks to trade with each other.
The simplest way to think of a forex account in relation to these entities is to see it as equivalent to a bank account, allowing you to buy currencies and hold them.
In forex, these currencies are purchased as pairs. The aim is to hold them until the value of one of the currencies changes in a way that will be profitable for you. If you buy the EUR/USD pair for example, the intention is that you should hold the pair until the dollar becomes worth less than the euro.
It is a forex brokerage that will allow you to purchase these pairs to begin with, and will then hold them for you.
As with any business, the forex broker you choose will be aiming to make a profit from your custom. Each time you make a trade, they will take a slice of the profit from it.
Changes in currencies are measured in something known as ‘pips’. When you make a trade, the broker charges you a set pip. For example, the market might be trading at 1.2100 EUR/USD as a buying price, but when the broker enters your trade they charge you 1.2103 – i.e. three pips. When the trade closes, the broker will collect the profit between the two values.
However, it is not only the broker who benefits; before forex brokers existed, only those with a large amount of money and a special relationship with a bank could immerse themselves in the market. Forex brokers opened it up, making it accessible to all.
The Role of Brokers
Brokers all share one role in common: they provide traders with access to the forex market. However, some of them will also be willing to offer advice or effect trades on your behalf. Many will even offer educational materials to allow you to improve your own trading skills.
Forex brokers want you to turn a profit, because when you do, they do too. However, not all of them will provide the same level of service or expertise to those who enlist their help. This means that, when you’re choosing a broker, it’s really important that you do your research and take the time to find one that suits your needs. Get it right, and you could make a major profit; get it wrong, and you could risk losing everything.