When someone starts trading, the first thing they start searching for is the right Forex broker for their adventure. Needless to say, searching for a good one should imply knowing what such a brokerage does.
As a result, traders might end up learning some important things about the brokerage they’re using – but not necessarily something helpful for them, which is why knowing what you are dealing with is important.
Now, since there are more and more brokers taking on board the US forex traders, it’s essential that you know what their role is and how exactly they work. Let’s find out!
Forex brokerage: The basics
In broad terms, a Forex brokerage is a company that provides traders with a suite of financial services for their specific needs. Simply put, it allows traders to buy and sell currency much more conveniently.
The main ace of the brokerage, so to speak, is their trading platform, as well as their terms of use. Platforms are, more or less, quite similar. What’s different, however, are the fees and taxes of each and every brokerage.
These companies make a profit via transaction fees, trading fees, and so on – and such fees are also the main source of attraction for clients.
How does a brokerage work?
As you might already know, a brokerage works 24/7 and on a global level – due to the nature of Forex overall. Through a platform, they allow traders to buy and sell currency online.
These traders can be individual people, often called retail traders. However, such platforms are populated by people acting in the name of large clients/companies as well. At the end of the day, everybody who is active on a brokerage’s platform is an investor – big or small.
On top of that, depending on the reputation or course of action of the brokerage, it may offer more or less currency pairs for its traders. Usually, people go for the brokerage with more pairs available.
What is the role of a Forex brokerage?
The role of a Forex brokerage is to make making a profit easier when it comes to Forex trading. With the help of such a company, a trader can open and close a trade using the same currency pair. There is no need for a walk to the exchange office involved, to say the least.
Ultimately, the trader bets on a higher exchange rate the moment they close a trade. If the rate is higher, they round up profit – if not, they don’t. Naturally, brokerages make a profit regardless of whether a trade is won or lost.
The brokerage makes a profit based on the spread between the bid and ask price of a currency pair. Not only that, but they also have some fees to help them increase their profits – such as the transaction fees paid when withdrawing money.
Some might say that the role of a Forex brokerage is to allow every human on earth to trade any pair of currency very easily while taxing them for doing that.
The bottom line
Obviously, such brokerages also play a role to keep our money safe. This is why you should rely only on regulated and reputed brokerages. Never fall for the no transaction fees ads or lures like that. If they come from an unknown brokerage, they’re most likely a scam.
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