Popularly referred to as Forex or FX for short, Foreign Exchange is the amalgamation of Foreign Currency and Exchange. It is the process of exchanging one national currency against another for a myriad of reasons ranging from tourism to trading. Simply put, Forex involves trading currency exchange pairs like EUR/USD, AUD/USD, USD/JPY, etc., for a price. As a global marketplace for currency conversions, the Forex markets are perceived to be the world’s largest and most liquid assets.
An Overview on Forex Trading
Forex typically operates in three trading sessions namely, Asian, European, and United States. The Forex market operates 24/6, that is, opens Sunday afternoons and closes Friday afternoons; however, technically, the Forex market is open 24-hours.
Basically, the Forex market is a global-scale, Over-the-Counter (OTC), decentralized market. Here, the currencies are typically traded in varying trade sizes referred to as lots, which are as follows;
- Micro lot: 1,000 units of the base currency
- Mini lot: 10,000 units of the base currency
- Standard lot: 100,000 units of the base currency
The opening and closing of the currency trade best describe Forex trading. Here, opening refers to buying a currency pair, while the closing of the trade refers to selling the same currency pair. Traders make profits when the exchange rates are higher while closing the trade.
Understanding the Role of Forex Brokers
Forex brokers are an essential aspect of Forex trading as they connect the Forex trader with the Forex market. Typically, the Best Forex Brokers enable the Forex traders to access trading platforms where the buying and selling of foreign currencies take place.
Every trader is different; thus, one glove fits them all doesn’t apply when choosing a Forex broker. Fundamentally, Forex brokers are of the following two types;
- Neutral Brokers
- Non-neutral or Traditional Brokers
Neutral Forex Brokers
Neutral Brokers as the name suggests are neutral to the markets. Thus, they are commonly referred to as market-neutral brokers. Neutral brokers make money when the trader makes a profitable trade.
Non-neutral Forex Brokers
Also referred to as market makers or traditional brokers, non-neutral brokers make money when the traders lose money and lose money when the trader makes a profitable trade. Here, the profits and losses are determined by the market’s movements; and, typically involve speculating the price movements in the Forex markets.
Choosing the Best Forex Broker
Considering the core differences between the neutral and non-neutral Forex brokers, many people may choose the market-neutral Forex brokers. Nevertheless, traders must consider other aspects as well, irrespective of the type of brokers. And, these aspects include and are not limited to the fact whether their service is regulated or not; what are their service charges, transaction fees; the broker’s security, and so on.
Apart from these aspects, Forex traders must also consider the broker’s customer support system, spreads, software used, app compatibility, access to various currency markets, among others.
Forex brokers are an integral part of Forex where choosing the right broker is vital. While deciding on the broker type like neutral and non-neutral brokers is important, traders must also consider other important elements. And, these include factors like trust, reliability, service charges, currency pairs offered, trading platforms used, minimum deposit amount, among others.