Who are the US Forex brokers?
Forex brokers are specialized companies, the main activity of which is the provision of intermediary services in the international currency market. In particular, they are intermediaries between retail clients and financial institutions. Brokers are key figures on the Forex market. They are the ones who enable private traders to have access to trading on the exchange market. Forex brokerage companies act as a bridge between the banks and the traders.
Functions of a US Forex broker
We will try to answer the question of what the activity of the Forex brokers and what functions they perform. First, it is worth noting that thanks to them, customers have access to the trading platform, which allows them to enter the foreign exchange market and carry out trading operations. A trading platform is the main tool of any trader. With its help it is possible to open and close trading positions and, moreover, to receive the most actual quotes of currencies and observe the movement of their value.
Secondly, Forex brokerage companies provide clients with leverage, through which traders can operate in the market amounts that are much larger than their deposit. In other words, having only USD 100 on the account, with a leverage of 1:50, a trader can make deals for amounts up to USD 5,000.
However, it is important to keep in mind that margin trading is associated with risks, since the increase of leverage increases not only the trader’s potential profit, but also his potential losses. It is also worth noting that at present almost all major Forex brokers provide their clients with access to analytical information, which greatly simplifies the forecasting of price behavior for any currency.
How do US Forex brokers earn money?
This is one of the most actual questions asked by most beginning traders. Like all the commercial organizations, the main objective of the Forex brokers’ activity is profit making. One of the main sources of income for the brokerage company is the commission imposed on every deal made by the trader.
It can be imposed in two different ways: in the form of a small extra charge to the spread, or as a direct payment for each transaction. Besides, it is necessary to note that any honest broker is very much interested in keeping traders working with them as long as possible, as he continues to earn as long as his clients work and earn.
How to choose a US Forex broker?
There are a lot of companies. Your further success in the foreign exchange market depends on the correctness of this choice, in other words — how honest the chosen broker will be and how good his trading conditions are. Therefore, when choosing a Forex broker, you should pay attention to all, even at first glance insignificant factors, including: the history, location, trading conditions, the used regulation and many others.
Before starting to trade on the Forex market, the prospect trader should carefully consider how to choose a broker, providing services of transactions execution. The question is very serious, and it is necessary to treat it with great responsibility. The Forex broker that you have chosen will provide (or not provide) direct access to the international currency market Forex, as well as other important brokerage services in the future. You will have to work in the market according to its spreads, according to the set trading conditions.
Which Forex Broker to Choose
If you are planning to trade positively, i.e. to open deals and keep them for weeks and months, then there is no problem — just choose any broker well-known in the market. The main thing is that the broker should be reliable, with experience, reputation, large turnover and the number of active clients.
But it should be taken into account that most traders at first try to trade as often as possible — one or more transactions in one day. At this point an important factor when choosing a broker will be the commission it takes for it. If a broker charges a big commission, it is not profitable to work with him. Many brokers having the fixed spreads add their own percentages to the quotations, which are sometimes very overstated. In these cases, traders who trade on Forex also pay inflated commissions, which is not profitable for the trade, reduces the expectation and can even lead a profitable system into deficit.
In that case, it is very important to choose the right broker who will not bankrupt you, but on the contrary, who will help you to earn more. In addition, the broker is a connecting link and a guide on the currency market. He works according to the rules and laws of the market.
When to choose ECN broker
The ECN broker has one important feature — he provides the trader with the real interbank quotations without any own markups. But in this case the broker charges a commission from the volume of transactions — usually $15-25 from 1 million of trade turnover. And the more turnover, the less commission. Trading through an ECN broker means receiving more profit than any dealing center can offer, since the broker is not interested in your losses. But with a professional ECN broker there are real market conditions with such surprises as spread widening, slippage, etc:
- When breaking news comes out in the market;
- When the trading week opens Monday night;
- When the market closes on Friday.
For professional traders with big trading turnover ECN broker is considered as the best choice on the currency market. It allows fast trading with minimal costs and low spreads. But if you’re a beginner, then it’s not so important for you to choose an ECN broker right away. You can start in any dealing center, the trading conditions there will probably be even better, until you start earning a lot.
Criteria for choosing a Forex broker
How to choose a Forex broker is a very important question. When choosing one, there are many factors to consider.
- What is the age of the company? The longer the company has been on the currency market, the more stable it is. The age of the brokerage company gives reasons to believe the chosen broker or not. This means that it has its own clients, it has managed to establish itself over many years.
- Location and number of branches. One of the most important factors. A brokerage company can have many branches around the world or one office in the USA. Of course, there is a difference and it makes a big difference.
- The turnover of funds and the number of clients. The credibility of the company depends on this. The more active clients the company has, the more traders trust it and the higher income the currency market brings, the more stable it is on the market. If the company has only a few clients, you will have to think twice.
- Who regulates the brokerage company? NFA and CFTC regulate Forex in the USA.
- The reputation of the brokerage company. A very important indicator, but difficult to evaluate. The reputation shows which Forex broker is the best on the market. Before choosing a broker, you should read the reviews about this company. If a broker has a lot of reviews, both bad and good, it is a good indicator. If a broker has no reviews at all or only positive reviews, it is better not to choose it. The absence of reviews shows that the broker is not interesting for traders, and there are no brokers with only positive reviews, most likely these reviews are bought.
- The client agreement. It’s important to carefully read the agreement you accept. It should clearly describe the relationship between the broker and the trader, the conditions of execution and acceptance of results of transactions. Also, it is important to read the regulations, in accordance with which operations on the currency market are carried out. Sometimes a broker specifically states in the agreement the conditions under which he can cancel the results of any transaction, and you simply will not receive the profits earned.
Broker’s trading conditions
- The selection of currency pairs and other instruments available for trading;
- The amount and type of broker commission — floating or fixed spread, or commission per turnover. If a broker’s spread is significantly lower than the spread of its competitors — this is a troubling indicator;
- It is necessary to know the broker’s sources of currency quotations — whether he forms them himself or takes from the interbank market, who supplies liquidity;
- Probability of «slippage» at closing of deals and ways of solving it should be taken into consideration;
- There must be a guarantee that market orders will be executed;
- If you open a PAMM account, you must consider the adjustment of open positions when investors deposit and withdraw funds;
After choosing one or several brokers, start by depositing a small amount in order to check the broker’s work. Pay attention to such components as: spread, minimal lot, leverage. If trading is comfortable for you and there are no problems, you can replenish the account. This means that the broker you have chosen works well and correctly. If you have felt problems in the broker’s work, noticed a delay in opening an order, you should refuse this broker.