Trading in the foreign exchange market can be exciting, yet tricky. Without underpaying the essence of individual research and skill, it is still necessary to approach a regulated broker to aid you to trade in the world’s biggest financial market.
There is no gainsaying that the foreign exchange market, or forex, is the largest financial market in the world. Currently valued at $2.4 quadrillion with daily trading volumes soaring up to $6.6 trillion, forex is a gold mine of financial opportunities waiting to be tapped by potential investors.
However, can anyone venture into the forex market individually? The short answer is no. Trading in this complex marketplace requires that you enlist the services of a broker or brokerage firm.
A broker, technically speaking, is a regulated entity that typically serves as the middleman between sellers and buyers, or between the forex market itself and buyers. In line with this, private individuals are not entitled to trade currencies on their own. One main reason for this is that forex traders are usually regulated and must be licensed. Therefore, for one to trade in this marketplace, one must be licensed and registered as a broker.
Why Do I Need a Forex Broker?
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There are several reasons why it is important to enlist the services of a brokerage firm. These include.
Regulation
With several regulations in place, you can rest assured that your money is safe and grant you that much-needed peace in a highly volatile market. These measures are taken to ensure that no funds procured from any client are used for personal trading activities.
Your Funds are Secure and Segregated
Putting your money at risk is the least favorite thing any client would want to do. Therefore, working hand-in-hand with a licensed forex trader ensures that an individual client’s funds are separated from the company’s funds. This protects the clients from any possible difficulty and fast-tracks the removal of the client’s funds from such brokerage firms.
Adherence to Guidelines
Before any brokerage firm is allowed to trade in the foreign exchange market, it is required to provide a range of trading instruments to the appropriate regulatory bodies.
Furthermore, these guidelines ensure that these brokerage firms adhere to standard book-keeping practices that prevent the overlapping of the firm’s funds with that of the individual clients.
Transparency
At the core of any brokerage firm should be accountability. It is pivotal for any brokerage firm to make a comprehensive listing of their commissions, as well as their trading spreads.
The brokerage firm is also expected to present the margins and leverage it affords its clients to the appropriate body.
Customer Support
Finally, a brokerage firm offers excellent client support. They help their clients set up trading accounts, resolve technical issues, and provide useful information that places their clients on a better pedestal to make gains in the market. This customer support is usually available 24/5 and can be the difference between making and losing money.
Advantages of Trading with a Forex Broker
There are several advantages and disadvantages of enlisting the services of a brokerage firm. They include:
Instant access to financial markets
A broker gives its clients access to over 100 instruments of the financial market. These instruments include currencies, commodities, CFDs on stock indexes and shares, and even cryptocurrencies. You —as a client— can buy or sell any of these assets within the twinkle of any eye.
Risk diversification
Using a broker to trade also gives you the opportunity of using different trading strategies that help you maximize profit and minimize losses. These include Scalping, swing trading, correlation-based strategies, etc.
Passive Income
For clients that are neck-deep in other activities, enlisting a brokerage firm can help you make those vital trades. Many firms currently offer copy trading as a strategy for traders. Copy Trading usually involves choosing a particular trader on the same platform and the brokerage firm will automatically copy his/her trade into your account.
Free Technical Support
Enlisting the services of a brokerage firm enables you to get quotes from various leading providers. You are also entitled to asset rates that are updated per second on the market charts.
Furthermore, each brokerage firm engages a software platform that uses technical analysis indicators to structure the charts and analyze quotes. On the part of the client, you are allowed to use the demo account to account yourself with trading strategies and functionalities of the platform’s software.
Information Support
Finally, these brokerage services provide their clients with educational materials and resources that can aid their experience in the market. This includes daily analysis, reviews, and opinions from leading experts in the markets.
Further, they provide other incentives like economic calendars, seminars, and webinars that make the clients’ experience a wholesome one.
Disadvantages of Trading with a Forex Broker
Nevertheless, there are certain disadvantages of enlisting a brokerage firm. These include
Occasional Fraud
Fraud may range from the manipulation of price charts to the manipulations of deposits and even the manipulation of client trades. Although it is rare to have blatant fraudulent activities with brokerage firms of recent, it is not entirely impossible to meet some bad eggs in the financial markets.
What Are the Demerits of Trading Without A Broker?
These disadvantages include:
Minute List of Investment Tools
When you trade without a brokerage firm, you automatically narrow down the product offerings that you can invest in. For instance, some investment banks may only offer a few currency pairs, coupled with their investment product. This also reduced the potential for high profitability.
No Access To Margin Trading
The margin mechanisms and leverage are solely the privileges of brokerage firms. No other institution can offer you those instruments.
No CFD trading
A Contract For Difference (CFD) is an instrument that is obtained from primary assets such as stocks and commodities. Without a broker, you cannot invest in this product.
Trade execution time up to 24 hours and more
Without brokerage firms, you simply cannot trade quickly. You will have to go through a series of documentation and approvals. This will surely affect your position as a trader in the market, understanding that in forex, time and strategy are of the essence.
Conclusion
Trading knowledge of the Forex market is a herculean task once you remove the idea of a licensed and regulated intermediary. With brokers, you can rest assured that your Funds are invested in the best instruments that are sure to give you high yield profits.
Established in 2012, the forex trading platform is highly recommended by leading experts in the forex markets for its easy-to-use and friendly interface that offers a host of product offerings, including currencies, stocks, commodities, and indices trading. Using the world’s most popular trading platform —MetaTrader 4— offers its clients an exciting range of convenient and conducive trading conditions.
As a forex broker enables copy trading. Copy trading aids green-horn forex traders to copy the deals of experienced traders in real-time, maximizing profit from those trade positions as well. Copy trading also works for those that are neck-deep in some other activities to make money off the financial marketplace. forex brokers also offer a host of educational tools and materials that guide traders through the market. The forex brokers also encompass a wonderful customer service that is available for traders.