There are a lot of misconceptions about forex brokers and the manner in which they work. While some feel that they make their money via commissions, many will argue that their forex broker does not charge a commission. There are other aspects of a forex broker that you should be aware of in order to be able to demand which basic services you will be gettingfrom your forex broker. Here are the few things you need to know.
- Forex broker profit – A forexbrokerage firm is not a charitable organization and therefore they do need to make money. There are no grants paid to them by any global forex trading industry to help new comers learn the tricks of the trade. They make their profits on the basis of the spread that is offered. The spread is the difference between the selling price and the asking prices of a particular currency. See more in this Forex brokers review. Across various clients, the forex brokers make their money by ensuring that they sell the currency at a higher price than the price at which they will buy it back from their client. Spreads are measured in the form of pips and a pip is generally calculated to the fourth decimal place. So if the buying and selling rates are 1.9456 and 1.9459, the spread offered is that of 3 pips.
- Capital backing – Many times you will see forex brokers claiming that they operate under the aegis of a large financial organization or a bank. This is a positive fact in favor of the forex broker since a forex broker needs to have a sound capital base in order to assure clients that it will not become insolvent.
- Demo account – Since the trader is likely to do everything with regards to trading on the forex trading platform, the platform that the broker offers is another important thing that you need to know about. Check if the trading platform allows you to trade in stocks and commodities too. You should also be allowed to check out the platform for a period of at least a month before you make your final decision to trade in the forex markets with that broker. This is the market norm and therefore you should demand it too.
- Customer service – The forex markets are open 24/7. And different people trade at different times of the day depending on the specific forex markets that are open, availability of time and overlaps of forex trading time zones. A forex broker should have the customer service available through chat, skype or phone at all times of the day and night from Monday when the markets open to Friday till markets close.
- Leverage – Without leverage you will only be able to invest the amount of money that you have in your account. With the facility of leverage you cantrade for higher amounts of money. However, a high leverage is not always a great thing and this benefit should be used judiciously by the trader at all times.