The forex or foreign exchange market is the worldwide market for the trading of currencies. This is a decentralized market, and its trades are done over the counter (OTC), rather than on a centralized exchange. The forex market is available 24 hours a day, with the exception of weekends. The relative values of currencies are determined by the foreign exchange market.
Who Operates in the Forex Market
The forex market is driven by the companies and people that operate foreign exchange trades. The largest traders within the market are banks, as they buy and sell large amounts of currencies on a daily basis, sometimes as an investment, and sometime to affect the market value of a currency. Along with banks, there are also institutional traders that deal in forex specifically with the aim of making a profit on their trades. Finally, you have forex brokers who through the trades that they execute for their clients, make up the last major sector of the foreign exchange market. Forex brokers are market makers, and therefore do not necessarily offer the exact currency prices available at the time, but rather have a standard mark-up on their prices to ensure profit.
Forex Broker Fundamentals
Forex brokers are companies that offer a way to trade Forex within the market, without having to actually purchase currency. Brokers do this using currency data feeds that are run off of the actual financial markets, and then add their own spread to the currency pair that is to be traded. The use of forex software that is specifically designed for brokers is an essential part of this and forms a large part of the brokers trading platform. The user side of this is known as the client software, and is what traders use to execute their trades.
Forex brokers offer traders specific currency pairs that they can trade in, however due to the size of actual lots in currency trading, most brokers offer their clients leverage, allowing them to make much higher profits, and also the possibility of greater loses. Many brokers allow traders to use Expert Advisors (EA) within their trading platform. An EA allows traders to make more accurate decisions when trading online.
The most important factor that traders need to take into account is whether the broker they trade with holds a forex broker license that is issued by a financial regulatory body within the jurisdiction that the broker is based in. Trading with a licensed forex broker ensures that traders have protection in their trading from the regulatory body that issued the license. Unlicensed brokers do not have any guidelines by which they offer traders conditions, and therefore there is nothing to stop them from taking their traders money. With a licensed forex broker, you can always approach the licensing regulatory body with your complaint to get it resolved.
Find out more about…