FOREX broking

Retail traders or simply individuals also trade in the FOREX market. These form small part of the whole trading business. They participate indirectly through a bank or a retail FOREX broker. FOREX brokers or market makers as they are popularly called, manage a small fraction of the total volumes. As per the official news, these retail brokers take up around 2 to 3 percentage of the total trading, which comes to around 30 to 40 billion US dollars. New investors need to be very careful while choosing a broker for their investments; otherwise they might end up in FOREX scams.

Today FOREX market is seen as an investment and a asset management class. So apart from investing in large financial institutions or investment management firms or large banks, individuals now wants to test the waters of FOREX themselves and thereby make huge profits. As every individual has his own requirements while investing, one needs to first determine what the amount is that they are going to invest in, how much is the period they are going to stay invested in, what is it that they are going to expect other than the profits. An investor then needs to choose a firm which best suits his profile.

Every country has their own way of regulating the FOREX services, so one has to choose a broker who is always monitored by a regulator based in their country. If the broker is regulated in an off-shore country, then the registration requirements are liberal. Countries like USA, UK, Japan, Switzerland, Eurozone and Australia have dedicated regulatory agencies. An investor needs to see if the company is a dealer or a broker, because the broker only acts as a channel between the investor and the dealer/market maker.

A dealer/market maker uses a dealing desk where all the deals are done. Large banks follow this method. These dealers use a two-way system, one being the fixed price spread where the prices remain fixed throughout a day, other being dynamic spread system, where the prices fluctuate according to the currency pairs they are invested in. These dealers deal with other market makers across the world and try to minimize the risk for their customers. Dealers typically manage spread revenue, revenue on swaps, netting revenue, conversion of residual profits or losses. On the other hand a broker just acts as a medium between the two. The broker sends information from investor to the dealing desk and vice-versa.

These days manual broking is replaced slowly by electronic systems called Electronic currency network (ECN). The ECN does the same work as the broker, but is only used for transmission of data. Generally every market has own ECN and they show the number of volumes available for trading at a specific time so that the trader knows what is the maximum volume that can be traded. ECN volume is a reflection in any single ECN, not the whole market.

It is also wise to know the past performance of the broker because if they do have a history of poor handling and low reliability, then one is bound to loose money. One has to check with the hardware and software capabilities also, because if the system freezes or crashes during high volatility, then it is not worth investing through him. The trading platform has to be user-friendly for the investor to be comfortable. An aggressive trader doesn’t want any kind of disturbances or inconvenience during trading. An investor must also be aware of the costs involved while hiring a broker. The typical brokerage charges include Pip spread (difference of bid and ask price), overnight interest rate and other transaction and service fees. Investor needs to know if the broker is able to provide any value-added services like live streaming charts for monitoring purposes, updates news, financial history and data of a company or a bank.

Finally the trader has to know if there is 24/7 customer support provided by the broker, because traders do have different doubts to be clarified at any point of time.

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Written by admin on December 6th, 2007 with comments disabled.
Read more articles on FOREX broking and Forex Broker.

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Disclaimer: Forex trading carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with currency Exchange trading.