Why Do You Need a Good Forex Broker?
Finding a suitable Forex broker is important for trading, no matter which trade you are doing. Forex brokers are those who work as a middleman or an intermediary between a trader and the interbank system. Interbank system is actually a network of banks who trade with each other.
There are so many brokers in the market but not all of them are suitable for you. Many traders often choose the wrong broker and lose everything even if they had great trading strategies.
Let’s look at the reasons why a broker is needed:
1. A broker can provide leverage: Different brokers can provide a various amount of leverage which can vary from 10:1 to 500:1. Brokers offer leverage based on the account size of the traders. Leverage helps traders to trade with more money than their account. For example, in 10:1 leverage ratio, traders can trade $10 with every $1 in their account.
Having leverage can be good or bad. Without proper risk management, lot size and trading knowledge, leverage can create a huge loss.
2. Traders can trade with two balance:
No matter which broker you choose, you’ll see two accounts in your trading platform. One of them is your actual balance which has no open trades and another one is your net balance account which is including open trades.
3. Spread: When a trader opens a trade, the broker passes the order in the market on behalf of you. Then, they’ll offer a price against that the currency pair. The price is slightly different from what they found.
For example, in the quote, GBPJYP 1.4300/1.4305, the broker will offer you to sell the currency pair with the first number 1.4300 and with the second number, the broker will charge you if you want to buy the pair. You can see, the difference here is 0.0005 or 5 pips. These 5 pips are the broker’s commission. Here the bid/ask difference charge which is 0.0005 is called collecting the spread.