What Is A Forex Broker – Understanding Their Role in Forex Trading

What is a Forex Broker? Can they help us to accumulate more profits? These brokers work between the interbank system and the trader. Interbank are networks of banks that are trading with one another. The broker will provide you with a price from the bank where they are connected so you can access the Forex liquidity. There are currently a lot of banks that offer good pricing and they are willing to offer you the best possible option.

The Opening of a Forex Trading Account

Before you can open an account with a broker, the first thing you have to do is to open a bank account. This thing requires a lot of steps and paperwork to accomplish which includes identity verification. The entire process will cost you a few days.

But if you are only trying to test the waters, it is possible to try the demo accounts offered by brokers. These simulation accounts are quite beneficial considering the amount of information that you can get for trying to get. With demo accounts, you can practice as much as you can until you are ready to use your own money in the live market.

Leverage Are Offered by Forex Brokers

Every broker offers a different leverage ratio. The ratio varies from 10:1 up to 100:1. For instance, the leverage ratio of 10:1 means that $1 in your trading account allows you to trade $10. Leverage can be treated as both good and bad. On the good side, you can make a good amount of profit out of it however, you may also suffer mounting losses on your trading account. It is important that you know these things so you will get yourself prepared for the risks that you can incur as you trade. Most of the time, it is the new traders who get too excited when using leverage that they end up blowing their own trading accounts.

Explaining the Two Balances in Your Trading Account

As you work with a broker, you will see two balances on your trading account. The nature of these balances is different. One is the actual balance that you have and that doesn’t include the ones in your open trades while the other balance is the one that you will get once you close all your open trades. Net balance is the term used for the second balance.

Understanding the Bid-Ask Spread

Opening a Forex trade with a broker allows you to have access to the market, something that wasn’t open to retail and small-time traders before. Back in the day, Forex trading is only for huge financial companies and banks that have an unlimited source of funds. But thanks to Forex broker, this situation has been cut short. Throughout the process of Forex trading, you are being offered a price that has a slight difference compared to the price that they can acquire.

The bid/ask difference is also referred to as ‘collecting the spread’. All these things are very important in your day-to-day trading. Be sure to understand these terms before you commit your money into the live market.