Forex brokers act as intermediaries between buyers and sellers in the foreign exchange market. They provide their clients with a trading platform, tools, and services that help them execute forex trades.
The broker makes money by charging a commission or spread on trades. The spread is the difference between the bid and ask price of a currency pair.
Leverage
Forex brokers offer leverage to traders as a means of magnifying profits. However, it is important to remember that losses are also amplified when using leverage.
Leverage is the use of borrowed money to increase a trading position, which allows traders to trade more heavily than they could otherwise afford to do. The amount of leverage depends on the broker, the size of the account and the size of the trade.
For example, a forex broker may offer leverage ratios of 50:1 or 100:1. These amounts allow for the purchase of more currency units than would be possible without leverage.
In this way, traders can control larger amounts of cash in the market with a smaller deposit. This type of leverage is usually referred to as margin-based leverage.
Spreads
Forex spreads are a key figure when it comes to calculating trading costs. They are a difference between the bid price and the ask price of a currency pair, usually measured in pips.
The width of Forex spreads is affected by many factors, including volatility and liquidity. For example, emerging market currencies tend to have higher spreads than major currency pairs, which are typically traded in larger volumes.
Economic and geopolitical events are another reason why Forex spreads can widen significantly. These events happen sporadically and can affect prices in a dramatic way.
In order to offset the risk of losing money, forex brokers often widen their spreads at these times. This allows traders to be more comfortable with trading during these times.
Most forex brokers don't charge commissions, so they make their money by quoting a bid/offer exchange rate spread on their currency pairs to their clients. This is called a dealing spread and is generally a bit wider than the professional Interbank market.
Platforms
Forex brokers offer a variety of platforms for trading on the forex market. These include their own proprietary software, and a number of 3rd-party platforms.
MetaTrader 4 is the most popular platform for forex trading, offering a wide range of features and fast trade execution. It also includes a comprehensive set of technical analysis tools that can help you make better trading decisions.
Another well-known option is NinjaTrader, which offers a powerful trading platform for professional traders. It comes with advanced charting capabilities, including Fibonacci tools and trend lines.
Interactive Brokers, or IBKR as it is more commonly known, has an excellent mobile app for trading forex and options on over 135 financial markets. While its interface might not be the most visually appealing, it does make forex trading from a smartphone or tablet as easy as desktop or web trading.
Customer service
The customer service offered by forex brokers is an important aspect of their business that can make or break their reputation. It should be provided through a number of methods, and should be available at all times.
Traders expect their forex brokers to respond quickly and efficiently when they contact them with questions or issues. This is a key factor in determining whether they will continue to trade with them or move on to another broker.
The best brokers for customer service will provide multiple ways to contact them, including non-invasive tools like email and text messaging, as well as live conversation methods like phone calls and online chats. Providing a mix of these methods is vital because it allows people who may be pressed for time to react to customer care communications at their convenience.
