DEFINITION of 'Forex Broker'

Forex brokers are firms that provide currency traders with access to a trading platform that allows them to buy and sell foreign currencies. A currency trading broker, also known as a retail forex broker, or forex broker, handles a very small portion of the volume of the overall foreign exchange market. Currency traders use these brokers to access the 24-hour currency market.

BREAKING DOWN 'Forex Broker'

Forex brokers are compensated two ways; firstly through the bid-ask spread of a currency pair. For example, a retail forex broker may buy euros for 1.2010 U.S. dollars and, at the same time, sell euros for 1.2015 U.S. dollars. The spread, in this case, is $0.0010, or 10 pips. Secondly, brokers will often charge a fee per transaction. However, competition in the forex broker has increased in the last five years, which has seen many offer free or very small transaction costs.

Forex brokers will allow customers to trade all major currency pairs; EUR/USD, GBP/USD, USD/JPY, and USD/CHF as well as the remaining g10 currencies and all the cross rates. Additionally, most brokers will allow customers to trade emerging market currencies. (Further reading: What are the most common currency pairs traded in the forex market?)

Before trading, a forex broker will require customers to deposit money into their account as collateral. However, through leverage, customers can trade larger amounts than what is deposited in their account. 

It is valuable to do some research to find out whether a broker has an excellent reputation and has the functionality that you are looking for in a broker. Most major forex brokers will allow prospective clients to use a practice account so that they can get a good understanding of what the system is like. It is a wise idea to test out as many platforms as possible before deciding on which broker to use.

Furthermore, because the forex market is a 24-hour market, most quality forex brokers will provide 24-hour customer service. (Further reading: 5 Tips For Selecting A Forex Broker)

 

RELATED TERMS
  1. Two Dollar Broker

    A two dollar broker is a floor who executes orders for other ...
  2. Forex Market

    The forex market is the market in which participants including ...
  3. Give Up

    A procedure in securities or commodities trading where the executing ...
  4. Forex Charts

    A charting package that allows a trader to view historical currency ...
  5. Forex Option Trading

    Forex Option Trading allows currency traders to realize gains ...
  6. Forex Account

    Opening a forex account is the first step to becoming a forex ...
Related Articles
  1. Investing

    How to Choose a Forex Broker: Everything You Need to Know

    Take your time when looking for a forex broker because a bad decision can be costly.
  2. Trading

    Getting started in forex

    Before entering the foreign exchange (forex) market, you should define what you need from your broker and from your strategy.
  3. Trading

    Is Your Forex Broker A Scam?

    While the forex market is slowly becoming more regulated, there are many unscrupulous brokers who should not be in business.
  4. Trading

    Price Shading In The Forex Markets

    This practice puts brokers ahead of their clients, but it doesn't have to be a negative for traders.
  5. Investing

    Brokerage Accounts, Explained

    Brokerages bring together customers or institutions and world financial markets. Here's everything to know about how they operate and what they do.
  6. Trading

    The Top 10 Forex Brokers for Beginners

    These ten forex brokers welcome new traders with user friendly educational tools and resources.
  7. Trading

    Navigating The Labyrinthine US Regulations For Forex Brokers

    Forex is, understandably, tightly regulated. We offer a peek into forex regulations in the US and other countries.
RELATED FAQS
  1. Why Do Brokers Ask for Personal Information?

    There are 3 reasons a broker needs personal information: suitability, record-keeping and the law. Read Answer >>
  2. What am I buying and selling in the forex market?

    The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank ... Read Answer >>
  3. Can a Broker Sell Your Stocks Without Permission?

    Find out if and when it's legal for a broker to sell securities from a customer's account and portfolio without their permission. Read Answer >>
Hot Definitions
  1. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  2. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  3. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  4. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  5. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  6. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
Trading Center