The ever growing demand for brokerages in the trillion dollar industry
Forex market being the largest financial market with close to $6 trillion exchanging hands each day finding clients in buyers and sellers is no hard task. Forex brokers offer trading software, liquidity and funding facilities for their clients.
It is the forex brokers that make the market more accessible and online forex trading easier for the traders.
As the Forex market has more online trading aspirants and people interested to trade in this highly leveraged market, Forex always remains a highly sought after choice. This provides a greater opportunity for Forex brokers to grow their businesses with all the facilities they require.
Services offered by a Forex broker
Online forex traders approach Forex brokers to open a trading account that allows them to trade in the market. Brokers assist their clients in everything from registering the trading account to activating it. Once the account is set up, the broker instructs the traders on how to fund their account and provide deposit/withdrawal service for their funds.
Some brokers also offer a Managed Account in which the broker trades the account on behalf of the trader. Leverage and liquidity are other services which an average trader cannot access without a broker. Brokers partner with big banks and liquidity providers to offer their clients funding and liquidity.
In online Forex trading, the majority of operations from placing trades to order management can be done online as brokers provide traders with online trading software and also support through email, phone and chat.
Brokers extend additional services to support clients in their trades with trading activity help and other technical services. Some brokers also offer Forex trading education and training to help their clients learn about the nuances of the complex market.
In return for these services brokers charge their clients with commission or spreads on trades. In a move to attract more traders to open trading accounts with their brokerages, brokers offer promotions like bonus offers and rebate on trades.
Forex Broker revenue model
In the forex trading, traders gain some, lose some but brokers have got nothing to lose if Spreads are their primary mode of income. Spread is the difference between the buying price of a currency pair and its selling price
For example, let’s assume the market is trading at a buying price of 1. 3105 EUR/USD, the broker puts your trade at 1. 3107 EUR/USD. If the trade is immediately closed, the broker collects his Spread which is the difference between the market price and the price you paid.
So with Spreads as their commissions, forex brokers have got nothing to lose irrespective of whether their clients gain or lose. But some brokers make money by taking the opposing position of a client’s trade. Imagine GBP is going to appreciate and a client wants to buy the GBP/USD pair, to provide access to the market some brokers take the opposing position of selling the GBP/USD pair.
If GBP gains true to the trader’s prediction and the trader gains on the trade, the broker loses. In short, for every gain a trader makes the broker loses if he takes the opposing position. But with charging spreads you don’t run that risk and the value is a minuscule fraction of a penny that the trader doesn’t mind sharing with you.
If that leaves you wondering how a few hundredths of cents can make significant income, imagine it in large volume of transactions. Which exactly the forex market is, $6 trillion average daily trading volume to be exact.
Factors traders consider to choose a broker
Due to the large number of Forex brokers operating in the market and the nature of the market itself which is highly volatile, traders consider certain factors before trusting a broker with their hard-earned capital, which are:
Regulation is one of the important factors traders look for in a broker as regulated brokers offer a higher degree of protection and fair trade practices. Regulatory agencies mandate minimum capital requirements and investor compensation of refund of deposited funds in case of bankruptcy.
● Security of funds
Forex market like any other financial trading market involves an aspect of risk. Traders prefer brokers who can provide better security to their funds by segregating client and operator funds.
● Trading software
Since most of the Forex trading is done through the trading software, traders look for brokers who provide them with an user-friendly and stable trading platform. Some brokers offer trading software with advanced features like charting, technical indicators that help traders understand the market better.
● Trading conditions
Trading conditions like transaction costs such as spreads, currency pairs available for trade, swap rates, withdrawal/deposit facilities are other factors traders seek as they want to make sure they pay only the best prices in this highly competitive market.
● Promotional offers
Promotional offers provided by brokers like no deposit bonus, rebate on trades, low fixed spreads play a major role in attracting new traders to open trading accounts with brokerages. Who doesn’t like some freebies after all?
Brokers see tremendous opportunity in this fastest growing market of foreign exchange trading. But they also face some stiff competition as the market experiences a steady influx of online forex brokers.
What will set you apart from your competitors is your commitment to fairness in transactions and transparency in operations. Being regulated by regulatory agencies like the NSA will be an added advantage. Efficient customer service and customisable lots are some other qualities traders look for in forex brokers.