All new traders know that Forex brokers are a part of trading but with so many around and each claiming they are the best, it is beneficial that traders know where they stand with brokers and vice versa.
In simple terms, Forex brokers are the middle man between the trader and the market. That it, Forex brokers provides the trader with the ability to place an order into the market and take their order out of the market. Without the broker and the platform which they provide, trading would not be possible. There are still many ‘old school’ brokers around that offer tickets in and out of the market via telephone, but with the rise of the online Forex brokers, this may become a dying art someday soon.
Historically, it was only banks and hedge funds that could get access to the Forex market but again, the rise of internet and the surrounding technology soon eliminated this and enabled anyone with internet access to place a trade. Ironically, it is the banks and large hedge funds that provide currency prices to various brokers. They are a part of the Interbank market which includes a number of different banks and hedge funds where brokers hunt for best prices.
Forex trading platforms
As we mentioned earlier, all online Forex brokers provide a trading platform as part of their sign-up package. The platform not only enables traders to get in and out of the market but it also provides the ability to study currency charts with technical indicators. A lot traders use technical indicators to pin-point their entry and exit signals; but this in only achieved if the price is interpreted in the correct manner. The point is however, that there are many currency pairs provided and the correct chart analysis could enable traders to generate a profit via the trading platform.
The Forex broker market is slowly becoming a saturated market with a new broker popping up pretty much every week. If you thought that every broker is a safe broker then you may be mistaken. Unfortunately there are many ‘scammy’ brokers around who are only interested in taking your money. With experience, you will learn which ones to stay away from but the term you need to be most aware of is ‘market maker’.
Not all market maker Forex brokers are bad but unfortunately there a few that will trade against you. Simply put, they will ensure that you trade many times by offering really small spreads and once you put them at too much risk i.e. you are winning all the time, they will place the trade you bought or sold and push prices against you to ensure that you lose. The reason why they can do this is because the original order which started when you pressed ‘buy’ or ‘sell’ was not placed in the Interbank market. It was placed in their copied version of the Interbank market which is only valid on their platform. So, try and be a bit careful when you come across a market maker.
