Have you ever felt intrigued by the many advertisements
on high leverage and great profit potential involved in currency trading?
The golden gate of the kingdom of money, we are told, is reached by the
road of forex. Are forex brokers highway robbers infesting that road, or
honest dealers making our journey easier? We'll discuss the brokerage
business in this article.
A forex broker is the mediator between the retail and wholesale forex
markets The wholesale market is comprised of banks and similar large
institutions, and the retail market, of course, includes individual
traders who are seeking to acquire speculative gains. Forex brokers are
not traders themselves, but occasionally they will have their own staff
trading the market on their behalf.
Forex brokers allow retail traders to interact with the markets, and are
compensated for their services through the bid-ask spread which is the
difference between the price a trader must accept to sell (bid), and the
price he must pay to buy(ask) a currency. Since forex traders suffer
losses often, brokers make the utmost effort to protect themselves. First,
they net out the positions of their clients with entries on the opposite
side. Since the vast majority of forex traders lose money, by entering the
opposite order they usually make profits. And they also protect themselves
by activating margin calls in case that a trader's account value falls
below a threshold level (margin requirement).
At the inception of the forex brokerage business, retail trading was
largely unregulated as authorities did not possess the expertise and
background for effective oversight. Today, however, numerous regulatory
bodies which include the CFTC in the U.S., the BaFin in Germany, and the
FSA in the U.K. ensure a healthy, legal and competitive environment by
maintaining strict regulation of the business. As such, one of the most
important considerations for a beginning forex trader is guaranteeing that
the broker is regulated by the relevant national authority.
In general, today's laws and regulations do not protect forex traders in
the same way that stock traders are protected. Accounts opened with online
stock brokers are usually protected against broker insolvency by up to
$100000, and yet there is no equivalent protection for forex traders.
UK-based brokers are required to segregate client assets from the firm's
own capital, and so, creditors cannot press claims against forex traders
if an FSA regulated broker goes bankrupt.
Forex trading is a great, profitable career for the committed individual.
And a carefully scrutinized, patiently selected broker can be an excellent
partner for a successful forex trader. Ultimately, finding the right
broker is not just about screening forex broker lists, but improving our
own discipline, and analytical skills in determining what we want from
trading. Set your goals right, and you can reach them in due time.
Vacillate in defining your aims, and success will likewise hesitate to
come your path.