What is the purpose of a Forex broker?

Trading on the opportunity market (Forex) is nowadays a particularly popular activity for investors. To be able to speculate on currencies, or more precisely on currency pairs, you must go through an intermediary: the broker or Forex broker. What is the role of the latter?

The Forex broker: an intermediary

The Forex broker is an intermediary through whom the trader can access the foreign exchange market. More specifically, this broker allows investors to speculate in the interbank market. The latter therefore contact the intermediary for the various transactions. For its part, the Forex broker collaborates with banks. Through these partnerships, it allows its customers to benefit from advantageous purchase and sale prices.

Easy access to Forex

Thanks to the Forex broker, access to the foreign exchange market becomes much easier for traders. The only step for them is to register on a trading platform like Plus500 and that’s it. They must then provide specific information and documents to prove their identity. Once they are members of such a site, they can start placing orders and expect to earn money when they make wise decisions.

Most Forex brokers provide a free demo account or demo account. With this account, traders can familiarize themselves with the world of online Forex trading. They then have the opportunity to train and implement strategies without risking their money. A certain amount of fictitious money is, in fact, made available to them to speculate “for forgeries”.

forex

Leverage effect

In addition to facilitating access to the foreign exchange market, the Forex broker offers a particularly attractive leverage effect. This differs depending on the broker, but operators can be found offering a leverage effect of up to 100:1 or even 500:1. But what does that mean? By taking advantage of a 100:1 leverage effect, the trader has the possibility to take a position for a total value of 100 euros, by having only 1 euro on his trader account (he could then take a position for 100,000 euros by having “only” 1000 euros on his account). This leverage effect is particularly interesting, but there is also a downside not to be overlooked: if the right decision is made, the trader makes a big profit. Otherwise, he can also lose a lot.

Understanding the spread principle

By acting as an intermediary between the trader and the Forex market, the broker charges a certain commission, which generally takes the form of a spread. Each time the trader opens a position on the foreign exchange market, the broker charges a price slightly different from the most advantageous price on the interbank network. This difference constitutes the spread. Traders should ensure that they compare the spreads practiced by brokers and choose the lowest of them.