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Forex brokers: what do they do and why do we need them?

Forex


If you are, to even the slightest degree, familiar with forex, it is not news to you that brokerage is an essential part of this sphere. Even outside the world of trading, most people have definitely heard this term.

However, the vast majority of them do not know precisely what brokerage means, even in general (needless to say about a specific manifestation this phenomenon has in forex). If you’re one of those people (or if you merely want to refresh your knowledge about brokerage peculiarities), this article is for you.

In the general context, the term “brokerage” denotes a specific type of mediation conducted between the counterparties of the deal. In terms of forex, the essence of this concept maintains the same, as it is defined both as a process of connecting counterparties in forex deals and an entity providing this service. Brokerage mediates the connections between forex traders and the market. Brokerage activities are conducted by specific agencies authorized to perform these functions.

The significance of brokerage in forex is caused by the specificity of this sphere and, particularly, the operations linked to trading processes. Forex operations are conducted in a virtual space, at a place referred to as “interbank.” There are numerous traders who interact with each other and with banking in this space, selling and acquiring currencies based on the prices that could vary significantly. The account you use to trade forex has many properties of a bank account, providing you with a place to acquire, hold, and sell different currencies. The operations are always conducted with currency pairs. The main way in which you gain profits is by holding a currency you purchased long enough to make it cost more than it did at the moment of the purchase so that you can sell it back for the other currency in the pair that you initially used to purchase it.

In this regard, the availability of a mediator in the face of a brokerage agency significantly simplifies the navigation in the sphere and, overall, the course of operations regarding foreign exchange. Before the practice of brokerage became widespread, traders required large sums of money and connections with the banks to deal with forex. Instead, today, brokerage provides you with the necessary mechanics, technical analysis devices, and general assistance in these operations. Some brokerage platforms, such as Evotrade, also offer their clients an extensive body of trading-related information and various educational materials that allow the latter to hone their skills and make better decisions regarding forex operations.

Of course, brokers do not help traders out of pure altruism. Every operation that goes through their hands leaves them with a small piece of the overall deal’s price. In forex, the unit that measures the correlation between the prices of two currencies in a pair is known as pips. Whenever you make a trade, a few pips are charged from you by brokers before your offer appears in the market. Therefore, there is a slight difference between the price you request and a price that brokers allow to appear as a public offer. This difference becomes the basis for brokers’ profits.

If you think that this item is too small to bring brokers any profits in the end, you are partially right. However, keep in mind that, albeit insignificant in the scale of one trade, the sum obtained in such a way becomes much larger with the increase in the number of operations that brokers overlook. Besides, its small size makes traders comfortable with the fact that someone takes a portion of their profits from them. Also, the pips become worth much larger sums in case if traders use forex leverage provided by brokers. This instrument allows traders to operate larger sums of money that are actually available to them through borrowed funds provided by brokers. In such conditions, brokers’ profits from each operation become much more significant.

An important aspect to keep in mind is that the profits of your broker do not depend on whether you are winning or going on a losing spree. Brokerage agencies still obtain their money. However, it does not mean that you need to view brokers as your enemies who do not care about your success. A good, reputable brokerage agency will never put a spoke in its clients’ wheels. Therefore, it is in your best interest to approach the selection of a broker you’re going to work with as thoroughly as possible. Fortunately, it is possible to find the information regarding most brokerage agencies in open access. You can also browse through their websites, look through the services they offer, and try your trading skills on demo accounts most of them provide. Finally, if you are not into all those checking operations, you may simply trust other traders and select a popular and reliable platform, such as Evotrade and some other brokerages. The popular vote does not always reflect the reality adequately; however, in this case, there is a high probability that it does.

So don’t hesitate. Select your broker, create a demo account, and immerse yourself into a fascinating, risky, and rewarding sphere of trading. However, keep in mind one thing: no matter how good you are in trading, you can always become better. Learn the essentials, obtain new knowledge, hone your skills, and, in the end, your chances of becoming a successful trader will get highly realistic.

 

 



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