What is a broker? To answer the question, let’s have a look at the general picture of the marketplace; we can easily glean the significant functions and roles that a broker plays in the larger scheme of things.
The Forex Market is the place where buyers and sellers of different currencies meet. Most of the time, they can be miles apart. For transactions to take place there must be a mechanism that facilitates them. This is where the broker comes in picture. Essentially acting as a middleman between various traders that are actively engaging the Markets.
PRIMARY FUNCTION: they’re a crucial link between individuals and the Forex Market
To give the most basic example, say you are a seller of a particular currency and you need a buyer to execute the transaction. By going to a broker you are assured to be matched with a buyer and thus complete the currency exchange of your choice. In other words, the Forex broker acts as a middleman between various traders that are actively engaging the Markets. This is the primary function of a Forex broker, but not the only one.
By fulfilling the role of liquidity provider, a broker provides customers with a permanent price range, e.g. a buy and/or sell order. This establishes greater price stability, guarantees transactions, all the while making sure that you, the buyer or seller, are able to find a counterparty for your transaction at any time.
Brokers work to make profits by facilitating speculation in the volatile Forex Market. The means by which brokers make money is called spread i.e. the difference between the Bid and Ask prices for a currency pair, and by charging commission on transactions of certain types of accounts.
Interacting with your Broker
In the Forex Market, a broker is no longer thought of as someone you phoned in order to have him buy or sell on your behalf. Advanced communication networks and trading platforms allow traders to interact with their brokers in real time. This environment allows for improved trading conditions, higher transparency and lower costs. Recently, certain brokers actually enable you to trade through a web browser, which can be beneficial as it allows you to trade from any computer without having to download additional software.