Everyone who wishes to trade in the forex market needs a broker. But what exactly does a broker do in forex trading? Let’s understand this with the help of an example. When you need apples, you go to a street market. The apple is a commodity you wish to buy, and the street market is the place where you can actually purchase apples; because it is where people sell apples. Similarly, imagine you sell apples and have to find customers; for this, you will go to the street market. Thus, the street market is a place where they both come together to buy and sell apples. The forex market works in a similar manner. To buy and sell currencies, you need a place where the exchange can occur. But in forex markets, the buyers and sellers can be miles apart from each other. Hence, it requires a mechanism to match both of their interests; that’s where a forex brokers comes in.
Understanding the Forex Broker
Forex is short for foreign exchange. Transactions in the forex market are always executed between two currencies, which form a currency pair. A forex broker can be a retail forex broker or an individual forex broker. While a retail forex broker has influential clients such as large financial services, investment banks and more, on the other hand, an individual forex broker only handles a small volume of the overall forex market.
Role of a Forex Broker in Forex Trading
A forex broker is an intermediary that lets the buyers and sellers come together for the exchange of currencies. He acts as a middleman between you and the forex market. The broker’s objective is to match you up with a seller or buyer based on your needs. In simple words, whether you need to find a buyer or seller for currency exchange, you need to go to a broker. Without a reliable forex broker, you cannot access the forex market.
Reputed forex brokers allow their customers to trade in numerous currencies, including those of developed and emerging countries. With the help of a forex broker, a trader can open a trade by purchasing a currency pair and closing it by selling the same currency pair. For Example, a trader who wishes to purchase US dollars for euros will purchase the USD/EUR currency pair. This means buying US dollars with euros. However, to close the trade, he will need to sell the currency pair, which is equivalent to buying euros with US dollars. If the exchange rate is higher at the time of closing of trade, the trader makes a profit and vice versa.
Also Read: How to Choose the Best Online Forex Broker
The Trading Platform
A trading platform is what you use for trading. A trading platform is a type of software which helps you actually buy and sell currencies. Global forex brokers allow various trading platforms which can be downloaded and installed on your laptop or PC. However, some forex brokers offer you to trade through web browsers. It is beneficial for traders as web browser trading platforms let them trade even without downloading software on computers.