The foreign exchange market, also known as the forex market, is a huge cog in the overall world financial system. In terms of volume it is the largest market in the world, even larger than the credit market. This is simply because it is essentially the market surrounding the exchange of money for money.
Confused by what I mean by that? The foreign exchange market concerns itself with different currencies and how they are traded. A trade of U.S. dollars to euro is one example of a forex transaction. Since the values of all currencies & their equivalent value in other currencies fluctuates on a daily basis, some shrewd traders have capitalized on this and began lucrative careers in trading foreign currencies. How exactly does someone acquire foreign currency to then trade? Well, they hire a forex brokerage firm to help them acquire the currency they desire and then make trades. Brokers all operate differently, however, so here are some of the advantages and disadvantages that can come from choosing to hire a broker:
Easy Access To Foreign Currency
Had you not chosen to enlist the help of a forex broker, you would have to go down to a brick and mortar currency exchange and then either sit there all day waiting for a lucrative trade opportunity to come up or rush back there to make a trade while the getting was good. Currency exchanges are looking out for their own interests as well, so their fees are typically higher than what forex brokers charge.
Access To Practice/Demo Accounts
Most brokerage websites give you either a limited amount of money or unlimited funds to play around with before you begin trading for real. This allows you to get a feel for the markets without having to lose thousands of dollars in savings and truly understand if forex trading is right for you.
To make signing up for their particular service over another more desirable, many brokers offer bonuses to those who would like to sign up, like $30 in free credit or extra money per every dollar deposited that can be put towards trading. The comprehensive list of brokers who offer bonuses, by Connectfx.org is a great resource for checking out these bonuses.
There are fees associated with nearly every transaction you make on a forex exchange, from funding your account to trading currencies and withdrawing currencies back into a bank account. Ultimately forex brokers are businesses and they seek to protect their bottom line. How they choose to stay in business is sometimes through clever methods that mean their customers get to keep more of their money, but some skim much more than necessary off the top. Making sure to understand the fees surrounding your particular broker is essential to forex trading.
Some brokers will take your money willingly but will be much more hesitant to return it to you. Many brokers either have convoluted terms and conditions meant to confuse & stifle your efforts to withdraw your money or are outright scams that only become apparent once you’ve tried to withdraw. In fact, some brokers have insanely high minimum withdraw requirements that make most traders never able to withdraw the money back into their possession.
A good forex broker will only serve your best interests while taking a meager portion for themselves to keep the service running. Bad forex brokers, on the other hand, will defraud you at every turn and penny pinch wherever they can. Before you commit to any forex broker make sure to research them extensively before making a commitment. Do your best to find non-biased sources of information so you aren’t just being fed advertisements disguised as legitimate reviews.