Online trading is a practice that is becoming more and more widespread. In this context, many means and devices are put in place to allow traders to conduct their activities. Indeed, we find among these online brokers, Forex broker which allows users to trade currencies online. The operation of this device involves several concepts, each of them having a specific implication in the field.
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What to know about Forex broker and what currencies it offers?
Like many others, Forex broker is an online broker that is very popular with traders. It offers a wide range of currency pairs which will be presented to you in detail.
Forex broker definition
The Forex broker is part of the family of online brokers and offers its users the opportunity to trade on the currency market from financial products.
These include CFDs. With the trading platforms of Forex brokers, investors are able to buy or sell in the foreign exchange market in real time. This can also be done over the long term, i.e. over the course of a week, except for weekends. Some of these online brokers have an in-house trading desk and therefore act as market makers. On the other hand, others are simple intermediaries with no exchange office and therefore have limited room to maneuver.
Forex brokers’ currencies
Forex brokers offer a wide variety of currencies. In this market, the value of one currency is expressed in terms of another, so a Forex broker offers quotes for currency pairs. For example, we can have as an example, the rate of the euro against the US dollar, which is noted “EUR/USD”. However, it is important to note that Forex brokers do not offer all the different currency pairs. In fact, these financial intermediaries usually offer some major currency pairs followed by some minor currency pairs.
Speaking of major currency pairs, there are seven different currencies namely:
- the Euro ;
- Pound Sterling; and
- the New Zealand dollar
- Swiss Franc
- the Canadian dollar
- Australian dollar;
- Japanese yen.
These are expressed against the US dollar in the form of currency pairs:
- EUR/USD ;
- GBP/USD ;
- USD/CHF ;
- USD/JPY;
- USD/CAD;
- NZD/USD;
- AUD/USD.
As for the minor currency pairs, these consist of currencies with little influence on the international market. Examples include the Danish krone (DKK), Turkish lira (TRY) and Norwegian krone (NOK). In addition to currency pairs, some Forex brokers also offer commodities and also precious metals like gold. In addition, they also offer stocks, stock indices and also products that can be traded on the financial markets.
SEE ALSO: ETF (Exchange-Traded Funds): definition and investment tips
What is the role of Forex brokers?
Forex brokers also called brokers offer many services to traders.
Easy access to the market
First of all, they allow you to have easy access to the foreign exchange market by acting as an intermediary between you and the market. It is the broker that connects the trader with the interbank market (network of banks). Thanks to the Forex broker, traders can take advantage of the best buying and selling prices offered by the banks with which they are linked. Forex brokers make it easy for traders to access the market by opening a trading account.
To do this, you just need to go through an identity check and that’s it, you can launch yourself on the market. It is now possible to invest, earn money and withdraw your earnings. Also, Forex brokers give traders the opportunity to practice with demo trading accounts. This way, beginners can enter the market with a virtual portfolio, before being able to invest with real currencies.
Benefit from leverage
On the other hand, with Forex brokers, traders can take advantage of leverage, one of the main features of these brokers. By using leverage, traders can have a greater investment capacity. However, leverage will vary depending on the broker and the type of trading account. Indeed, while one online broker offers a given value for its maximum leverage, another may offer another. Thus, one can have a leverage of :
- 10:1 ;
- 100:1 ;
- 500:1.
FxPro and IronFx offer a 500:1 leverage, meaning that for every $1 in the trading account, it is possible to trade for $500. As for a broker with 100:1 leverage, a trader who has $1000 in his account is able to trade for $100,000. And in this case, he only risks his starting capital of $1000. Having such high leverage can be both an advantage and a disadvantage. Because it can help you make impressive profits, but it can also lead to significant losses in the case of a bad trade.
Forex broker spreads
Finally, brokers are paid commissions on the sale and purchase transactions made by traders. These commissions are called spreads. For Forex CFD brokers, the spread is the difference between the buy and sell price. Depending on what your online broker offers, the spread can be variable or fixed. During periods of high volatility such as during FED or ECB meetings, the variable spread increases. On the other hand, during periods of low volatility, the spreads tend to decrease.
When choosing your Forex broker, there are several things to keep in mind. First, take your time, get informed and choose a serious Forex broker. Turn away from foreign Forex brokers who are the target of the AMF and opt for a Forex broker whose offices are in France and who has a French customer service. Depending on your investor profile, it will also be important to look at the minimum deposit set by the online broker to open an account. The more reliable the broker is, the more flexibility you will have when you start trading in the Forex market.
SEE ALSO: Etoro: what to think about this online trading broker?
