In the forex market, traders usually buy or sell currencies based on the value of the currency which will either depreciate or not. The Forex market is full of high risk and more than $5 Trillion is traded every day. The brokers make money on fees and commissions. In order to find the right broker, you need to understand the Foreign Exchange.
A broker mainly takes order to sell or buy currencies. They usually operate on the Over-The-Counter or OTC market. It is not at all subject to regulations that govern the securities transactions. There aren’t any centralized clearing mechanisms to be careful about. In return of buying and selling of the orders, the broker charges a commission per trade from the trader. The bid price is the one you will pay to buy the currency. The difference between the bid and ask price is the spread of the broker.
Some of them claim to offer commission-free trades. The brokers make a commission on widening up the spread on the trades. This spread is sometimes fixed or varied. In the case of a variable spread, the spread is varied on the movement of the market. Even a minor change in the market could bring changes in the spread.
This could act both favorable and unfavorable to the broker. When the market gets volatil, one is prone to pay up more than usual, he does. The broker is expected to have different spreads for buying a currency and selling the same currency, therefore, the trader needs to pay keen attention to the pricing. The brokers with a large number of foreign exchange dealers to get great quotes.
Read more about forex: FOREIGN EXCHANGE MARKET
By depositing an amount as margin requirement, it is possible to trade on margins. But this may bring a lot of risk in the forex market for both the broker and the trader. Many traders have lost money and were not at all able to make good on margin requirements, resulting in losses and bankruptcy. Many inexperienced traders have also been caught up in the fat finger error, like the one who was blamed for a 6% drop of the British pound in the year of 2016.
Many traders have lost and gained money due to the forex market. They have lost a major part of their money as a result of a worthless scheme that promises for great returns in this kind of a market. This is not the only market where prices are transparent and every broker has it’s own unique method. It’s up to the one who is transacting the money in the market and investigating the broker pricing to ensure a good deal for themselves.
Read more: BEST TIME IN THE FOREX MARKET