How to Trade with a Forex Broker
Since the Bretton Woods system in the 1940’s, the U.S. Dollar became the predominant currency in international trade. Pegged to gold for a little more than a couple of decades, it started to free-float when the Nixon administration dumped the gold standard in the early 1970’s.
We can track Forex or foreign exchange trading back to the years that followed the Nixon’s decision. It was the moment when the interbank market started to function and currencies all over the world free-floated against the U.S. Dollar, which became the de-facto world’s reserve currency.
Forex trading as we know it today didn’t exist for many more years. Nowadays available to retail traders via online trading platforms and Forex brokers, for decades it was available only to interbank market players.
The Personal Computer (P.C.) and the Internet made it possible for a new type of business to arise: the brokerage industry for the retail traders. With online trading gaining more and more followers, picking the right Forex broker for the trading activities became crucial to one’s trading success.
What is a Forex Broker?
A Forex broker is the middle-man, the entity that enables Forex trading. Against a commission or a fee, it enables the access to the largest market in the world: foreign exchange.
Every day, over five trillion dollars change hands on this market. It is, by far, the largest financial market in the world.
The beauty of it is that traders don’t need a finance degree to buy or sell currencies and currency pairs. What they need is a proper understanding of the Forex market particularities and Forex glossary, to help them navigate through the everyday market swings.
Without the Forex broker’s efforts, retail traders, or regular private persons, could not access the interbank market. It is too expensive.
The broker takes the costs and pays for the technology, either building or licensing it. It offers trading platforms as the market interface (e.g. mt4, mt5), and makes sure the traders get the best possible conditions for their activities.
By accepting the terms and conditions set by the Forex broker, the trader becomes a partner in the online trading business. Both the broker and the trader’s interests are aligned on the same direction: the trader wants to speculate and make a profit, the broker wants an active trader, so it earns more from commissions and fees.
After all, it is a win-win situation. Moreover, the Forex broker provides Forex education materials in the form of trading academies, trading for beginners courses, as well as webinars to make sure traders understand the ins and outs of Forex trading.
The Forex broker provides access to the interbank market. In exchange for a fee, traders buy and sell currencies.
Currencies are paired against each other. Therefore, a currency pair reflects the rise and fall of a currency, as well as how the two economies perform.
By correctly indicating the direction of a currency pair, the trader makes a profit. At the same time, the Forex broker earns a fee. The process, known as online Forex trading, is one of the most popular in today’s online environment.