What Is A Forex Broker & Do You Need One?
What Is A Forex Broker
A Forex broker is a company that acts as the middleman between you and the market (hence broker part).
The Forex broker’s obligation is to provide a secure and regulated environment, combined with the best execution policy, to provide regulatory approved standards of providing a service.
Features of a top forex broker:
Regulated in your country.
It doesn’t matter where they are based generally. As long as they are regulated in your country, either fully or approved via a regulatory passport, then this means you are protected.
Companies in other countries that offer services to foreign countries must have an approved status in each country they do business with, otherwise, as a client, you will not be protected.
For example, in the UK every company that offers these services MUST be regulated by the Financial Conduct Authority (FCA). If the broker is trying to get you onboard and you are from the UK – you must avoid this company if they are not regulated by the FCA.
It is better to pay a commission per trade than it is a spread. The commission allows brokerages to offer reduced spreads which will save you a fortune in trading fees/mistakes.
With 0 spreads, you will enter and close at the price you request.
With a 2-pip spread, you will enter and close at the price you request +/- 2 pips. This can be a case of being stopped out too early.
No forms of aggressive marketing
Marketing is essential for any business but those brokers that offer you bonuses that are adding to your account based on your initial deposit or even no-deposit promotions. These may look good on paper, but these marketing tactics are not good. The major brokers won’t offer these promotions as they normally have a negative effect on the user’s experience with the company and forex trading in general.
Bonuses and promotions are only okay if they are a reduction in commission or fees.
Swift Anti-money Laundering procedures
One of the main things you must do, which is by law, is to provide documents to the brokerage to comply with the law. The brokerage has a legal obligation to run checks on you to ensure that the service is fit and proper for you. This is completely normal. Just like opening a standard bank account.
You want a broker that can process anything involving admin as swiftly and efficiently as possible.
Offers Direct Access / Electronic Communications Network (ECN)
A few years back brokers would have dealers who would receive your requested order then fill it to the market themselves. This caused a delay in execution and allowed brokers to take advantage of market movements. This dealing desk would be able to generate extra profit based on the order execution from your terminal and from actually executing the trade in the market.
Now, thanks again to technology dealing desks have been eradicated by the bigger brokerages by offering direct access to the market. This is important because it means you will get the best-executed price possible at Market Order.
Dealing desks still exist in all brokerages, but they are mainly used for calling into a dealer to place a trade over the phone.
An ECN broker is preferable because it reduces the number of interactions between the client and the direct Forex market. Giving you the best possible trading conditions that favour both you and the broker.
Biggest broker myths
The broker makes it hard for me to withdraw/ blocks me from withdrawing.
We’ve seen this written on so many reviews of brokers and it’s simply not always fair on the broker. As discussed, the brokers require documentation to process and complete your accounts – some customers do not like doing this and get frustrated with the extra level of admin (although this is a legal requirement from both the customer and the broker).
Most brokers will process a fully verified account and send payment within 24 hours.
My broker hunts for my stops.
Absolutely not. No broker hunts for your stops – market makers and institutions do that.
Yes, it is true, if you place your stop loss or take profits at areas of high amounts of liquidity – this is because they have huge orders that need to be filled.
Don’t worry though, you will not be a victim to this common error.
We will show you how to avoid this and also take advantage of it.
How to open a broker account
Forex brokers will generally have the same step by step process of registering you as a client. Below we will us Admiral Markets, who are our recommended broker – plenty of benefits.
Not got a broker yet? You can read our Admiral Markets Review because we rated them highly, and believe they are one of the best forex brokers around!
Step 1: Go to the website and find the Create Account button
You can complete this process at the same time by clicking here:
Step 2: Enter your details
Step 3: Verify your account and complete the rest of the details. It’s as easy as that!
Tip on demo account money
Please only input the amount of money you can afford to invest down to £1,000 or $1,000.
For example, if you want to invest with £100 – please only add £1,000 on your demo account. Or if you want to invest £50,000 then please add £50,000 on the demo account.
This is important because the whole point of this free forex course and a demo account is to be able to easily and seamlessly transfer your abilities from the demo to the live account in the best way possible.
This will help you get used to the market moving against you and with you for a profit with the amount of trading size you would be using in the live environment.
By adding huge amounts of money that are 2x, 5x, 10x the value of your initial deposit – your mindset will not be adjusted to the lower value and could make poor, avoidable, mistakes.