What is a Forex Broker? This is the Definition and Regulations!

Forex brokers are third parties in the form of companies, institutions, agents, or individuals who stand to bring together sellers and buyers. Then what products are transacted? Of course in the form of forex trading (foreign exchange) or foreign currency.

In trading activities between countries, currency exchange occurs. This exchange has been going on for a long time when economic relations between countries began to be tied to one another.

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So you could say, forex brokers have existed since time immemorial.

Seeing the increasingly massive development of economic relations between countries, as well as the rapid growth in the forex market, of course, there are now more and more forex brokers in the world.

Why Do We Need a Forex Broker?

In fact, forex trading activities are dominated by big banks around the world. Dealing directly with these major banks is almost impossible for individual traders.

Besides having to have a liaison, transactions with large banks also cannot be done in small amounts. In other words, trading standards are practically beyond the reach of small-scale traders like us.

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Well, this is where forex brokers play a role. The forex broker will arrange for each individual trader to participate in forex trading. Brokers will forward requests from traders to larger brokers, and so on so that later every trader’s request can be accommodated in the large and massive forex market.

Forex brokers also provide software and other tools that allow traders to make online transactions via computers, laptops, and various other gadgets.

Therefore, traders can access the forex market only by installing certain programs or through a browser. Transactions can be done anywhere, anytime.

Where Do Forex Brokers Get Profits From?

Each broker has different rules for charging fees for their services. But in general, brokers can charge commission fees and/or spreads.

The commission fee is a deduction in Dollars that is charged on each volume traded by a trader.

While the spread is the difference between the selling rate and the buying rate (bid and ask). There are forex brokers who apply both, but there are also those who only set Spreads, or Commission Fees only.

Usually, the size of the spread depends on the type of currency pair to be traded. Spreads can be worth around 2-3 pips for a heavily traded major currency pair like EUR/USD (Euro against US Dollar). On the other hand, the Commission Fee will vary depending on the type of broker.

Online Forex Broker

what is a forex broker

Long before the internet, traders used old communication models, such as via telephone, to make transactions with brokers.

However, in this era of the internet, almost all forex brokers must facilitate online trading so that their traders do not leave them and are considered out of date.

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With the development of this technology, there are many conveniences that traders get. Apart from eliminating the difficulties of pre-internet trading and enabling transactions anytime and anywhere, traders can get real-time trading facilities.

With a special advanced application (MetaTrader), traders can monitor prices and execute orders directly on the trading platform. In addition, traders are also facilitated with various tools for analysis, access to news, and much more.

Examples of online forex brokers:

  1. Exness: Deposit Minimal $1, Extra Facilities (Swap Free Account, Segregated Account, Cent Account, Educational Content, Expert Analysis)
  2. OctaFX: Deposit Minimal $50, Extra Facilities (Platform cTrader, Akun Swap Free, Akun Segregated, One Click Execution)
  3. Agea: Deposit Minimal $1, Extra Facilities ($ 5 free capital, convenient Streamster trading platform for beginners, etc.)

A list of online forex brokers and full reviews can be found at Forex Broker Reviews.

Forex Broker Regulations And Legalities

The problem that then arises is how to choose a forex broker among hundreds of online forex brokers around the world. When there were few, the choice of brokers was very limited, so there was almost no demand for traders to be selective.

However, with the growing global interest in forex trading, new brokers have emerged with various types, advantages, and disadvantages.

Some of these brokers are good, but there are also some to watch out for. Some work professionally, some eat funds from their own clients. Such situations need to be understood carefully so that traders are not wrong in choosing a broker.

One way that can help traders choose a safe broker is to find out information about the broker’s regulations. A regulated forex broker means he must follow the standards and regulations set by the relevant regulator.

Forex broker regulators are generally official financial bodies or institutions under the government of a country. The better the regulator, the more stringent the rules followed by forex brokers will be.

Brokers cannot operate with arbitrary standards, because there are threats of penalties imposed if they violate the provisions of the regulator. Brokers can receive warnings, be subject to sanctions, and have their operating licenses revoked.

So, which forex broker regulators are credible? In this case, institutions in developed countries such as the NFA (United States), FCA (UK), ASIC (Australia) are often the first choice.

Various Types of Forex Brokers

In general, traders do not care and may not know how the broker actually manages every incoming transaction from the client. Traders can only guess from the broker’s claims and the quality of service he gets.

There are several types of forex brokers out there today, but actually all types of brokers boil down to two main categories: dealer (DD or Dealing Desk) and non-bookie (NDD or Non-Dealing Desk).

Basically, bookie brokers operate on their own market and do not display real exchange rates (prices) as presented on the interbank market and free forex demo account.

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Although they still provide traders with buy/sell execution options, bookie brokers are often suspected of manipulation. In fact, the broker can trade against his own clients because the profits also come from the losing trader’s position.

A better option of course is a non-city broker. Here, each transaction will be forwarded to a bank or a larger broker.

The broker’s profit really comes from the spread and commission fees, so there should be no trading terms against clients at a non-bookie broker.

In addition to the various types of brokers, there are also many scams under the guise of forex brokers. For that, you need to be careful and really recognize the characteristics or signs of a scam broker, so as not to fall for it.

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