Trading Academy

Lesson 2

Who is a broker?

By looking at the overall picture of the marketplace we can easily glean the significant functions and roles that a broker plays,  in the larger scheme of things.

The Forex Market is the place where buyers and sellers of different currencies meet. Most of the times, they can be miles apart. For the transactions between them to take place, there must be a mechanism that facilitates it. This is where the broker comes into stage.

Essentially, the Forex broker acts as a middleman between various traders that are actively engaging the markets. 

Primary function: crucial link between the individuals and the Forex Market

To give a most basic example, say you are a seller of a particular currency, and you are in need of finding a buyer to execute the transaction. By going to a broker, you are assured to be matched with a buyer and thus complete the currency exchange of your choice.

So essentially, the Forex broker acts as a middleman between various traders that are actively engaging the markets.  This is the primary function of a Forex broker, however it is not the only one. 

Liquidity Provider

By fulfilling the role of liquidity provider, a broker provides customers a permanent price range, e.g. a buy order and a sell order. This establishes greater price stability, guarantees transactions, all the while making sure that you, as a buyer or a seller, are able to find a counterparty for your transaction at any time.

Brokers work to make profits for themselves by facilitating speculation in the volatile Forex market. The means by which brokers make money are the spread (difference between the bid and the ask price for a currency pair) and by charging commissions for transactions on certain types of accounts.

Interacting with your Broker

In the FX Market, a broker is not longer thought of as that someone that you phoned in order to have him buy or sell something on your behalf. Advanced communication networks and trading platforms allow traders to interact with their brokers in real time. This environment allows for improved trading conditions, higher transparency and lower costs. Recently, certain brokers actually enable you to trade through a web browser, which can be beneficial as it allows you to trade from any computer without having to download software.

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