Forex brokers are intermediaries between a trader, and an interbank- interbank is the term used to refer to a network of banks trading with each other. Typically, when a trader approaches a forex broker, the broker offers them a price from the banks that they relate with. Most brokers use different banks for pricing before offering the trader the best one available.
You Simply Need To Deal With Forex Brokers
As a trader looking to trade in the foreign exchange or forex markets, you probably will need the services of a broker. To put things in perspective, so that you can fully understand what forex brokers do, let’s look at this example.
Say, for instance, you want to buy an orange, the first thing you will do will be to go out to the streets – since this is where you can find one because that’s where people are selling oranges. Now, let’s say that you are selling oranges and are looking to find customers, the street is where you will go to find customers. Right! Since this where people who are looking to buy oranges are. As such, the street is the market place where both sellers and buyers meet. However, when in the online trading market, you probably will not see so many people selling oranges to one another; they probably will be sold at a stall. The forex market is not that different. The only difference is that in the forex market, people are looking to buy or sell different currencies, and the market provides common ground for these traders to meet.
In forex markets, however, sellers and buyers can be thousands of miles apart. For them to find one another, there needs to be a mechanism that allows their matching interests to be merged; and this is where forex brokers come into the picture. As such, online trading broker can be considered to be the stall where the buyer and the seller – and vice versa – meet.
The Role Of A Forex Broker In Online Trading
A broker is where sellers and buyers can go to sell and buy different instruments like currencies. As earlier mentioned brokers operate as middlemen in online trading, https://www.xtrade.com/ is just one example for this. As such, for a buyer or and seller to sell his or her currencies, they will need to go to a broker who will match him or her with a respective buyer or seller.
Apart from just being middlemen between a buyer and a seller, they also serve as middlemen between the trader and something known as a liquidity provider. So who is a liquidity provider?
Let’s say as a trader you are looking to buy currency but there are fewer sellers in the market but who are selling large amounts of currency. It is these few sellers offering such huge amounts of currency (typically financial institutions and large banks) that are known as liquidity providers. When a forex broker say that he’ll link your trade with a liquidity provider, what it basically means is that he’ll probably pass your trade on to the provider, allowing the provider to take up the other side of the trade.
A forex broker in the original sense can be considered as anyone you contacted to sell or buy currencies. At the same time, the introduction of the internet and development of software has now enabled traders to interact with forex brokers through things like trading software and online trading platforms. With such software, you can now buy and sell currencies – meaning that such software can also be considered to be brokers.