A Forex brokerage is a circle that works as a link between Forex traders and Forex market. It is an electronic form of trading with banks in the background and prices of assets differ from bank to bank on a particular time.
A Forex trade account works as a bank account, where you can purchase major currencies and hold them. These currencies are available in pairs so they are purchased in that way only. A Forex brokerage offers a way to mix with banking network and make online trades to purchase a currency to hold. Before the involvement of brokers, people usually needed a large amount of money to trade and somehow an exceptional relations with a bank to buy foreign currencies.
Forex brokers live on by taking a cut of the cake when a trade is done online. The change in the paired currency’s relationship is measured in pips. When you launch a trade, broker actually takes few pips as his commission before he puts the trade to the market. For ex. If market is trading 1.3100 EUR/USD as a buying price and on you entrance broker may put you in at 1.3102. If you choose to close the deal immediately, Forex broker collects the profit, which is the marginal difference between the market price and the amount you paid. This is called a spread.
It may look surprising that why Forex broker collects such small amount as his earning, but the answer is very simple. Many people don’t worry about a few pips when they make a big trade, usually a trader go for at least thousand currencies. This seems quite fair if a person is charging few pips per unit as his commission. The real way for a Forex trader to make money is allowing you access to Forex leverage. When you use leverage, you can trade large amounts, actually more than what is lying in your account. In leverage you can trade $1000 having only $10 in your account. This is 10:1 trading, which enables you to control bigger amount in a trade. In this type of trade your chances of making profit or loss increases, and significantly the pips are also pips are increased increasing the spread. So you make a profit or loss, it will not affect the profit of the broker. In other words, the job of a broker is to provide you access to the Forex trading, and in the process he makes his money.
Forex brokers are usually business people, who make their livelihood on the commission generated on the trades a trader put in the Forex market. For this income, they provide a lot of help to the trader. The platform to trade, signals, tips about trading; basic knowledge and right environment to conduct a business are few to count. You may find many brokers online, some small and some big, they all function in same way.
To search a Forex broker, you can go through the listing of Forex broker’s list. This research, may take time, but it is worth for the money you are going to put in the trades.