What is a broker in forex

A forex broker is a financial services company that provides traders with access to a platform for buying and selling foreign currencies. The foreign exchange market is a global and 24-hour market, with clients including retail currency traders, large financial services firms, and investors. Forex trading is primarily between pairs of currencies of the 10 nations represented in the G10. Most forex transactions involve the U.S. dollar (USD), the Euro (EUR), the pound sterling (GBP), the Japanese yen (JPY), the Australian dollar (AUD), the New Zealand dollar (NZD), the Canadian dollar (CAD), and the Swiss franc (CHF).

Opening a forex trading account is simple and can be done online. Before trading, the forex broker requires a customer to deposit money into the new account as collateral. Brokers also provide leverage to customers, allowing them to trade larger amounts than they have on deposit. High leverage makes forex trading very risky and most traders lose money attempting it.

Forex brokers are compensated through the bid-ask spread of a currency pair, which is 1.2 pips when the Euro-U.S. Dollar pair is priced as 1.20010 bid and 1.20022 ask. When a retail client opens a position at the ask price and later closes it at the bid price, the forex broker will collect that spread amount. Some brokers charge additional fees, such as per transaction or monthly fees for access to a specific software interface or fees for access to special trading products like exotic options.

The forex industry is regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). Competition among forex brokers is intense, and many now offer free or very small trading fees beyond the spread. Some forex brokers also make money through their own trading operations, which can be problematic if their trading creates a conflict of interest with their customers. Regulation has curtailed this practice.

To compete risk-free with $100,000 in virtual cash, traders can use this site Stock Simulator, where they can practice trading strategies before entering the real market.