While everyone’s talking about the actual Forex trading, have you ever wondered about the Forex brokers themselves. They are a big part of the retail Forex market and they hardly get a mention. In that spirit, I thought I would mention a few words about them, here goes:
They don’t make as much as you think
You would imagine that if the traders make so much, then the brokers must make a lot, but no. As a picture, imagine the sales agent that markets million-dollar houses, do you think they make as much as the people buying the houses? That’s what the Forex broker does.
The devil is in the details
A broker will advertise their best features on the homepage, but the less attractive aspects will be hidden. To find these, you have to look deeper and not be fooled by the lucrative offers you first see.
Many of them are cheats
Finding the best broker is difficult among the many brokers in the sea that is the Forex market. Many of them will try to take your money, or deny your withdrawal request. In your search, you will need to look for more top rated forex brokers until you find the one who doesn’t have any dirty tricks. Use reliable websites about forex brokers and learn more about best companies to trade with on the Market.
They also make trades
A Forex brokerage works just like a bank whereby they use the customers’ deposits to make their own trades and investment.
Most of them are based in Europe
There are over a hundred Forex brokers in the world, but most of them are headquartered in Europe. Not only does the region accommodate the largest proportion of the Forex market, a report by the ECB shows it’s also the most active region, followed by Asia. The US market has a lot of restrictions, and the people are more used to the stock market.
A few brokers handle the most Forex transactions
The same report by the ECB also showed that just 10 brokers handle 85% of the daily Forex volume worldwide. The rest have to compete for clients, which is why they don’t make a lot, but the ones at the top have wonderful privileges.
Their operations vary
Forex brokers operate in 2 main ways, either by creating the market or transferring the trades to a liquidity provider. The former is risky because the broker is betting against their clients, creating a conflict of interest. As for the latter, the broker makes a profit either way, this way they have no interest in your earnings and can be unbiased.
Brokers pay taxes
With the exception of the US, retail traders aren’t taxed for their winnings, but the brokers are always taxed. Some countries have less restrictive laws, and these attract the largest number of Forex brokers. For example, Cyprus where corporate tax is 12.5% compared to, say, the UK where the tax is 20%.
They don’t own the trading software
The Forex trading platforms you download to your smartphone, tablet or computer is most likely just leased. There are companies that develop these software, and the Forex brokers only pay an annual fee for the license. Some brokers have their own proprietary software, though, but they often also offer the leased software too because they are more popular.
Most of the extra products offered are derived
The brokers will often tout about allowing traders to trade indices, stocks and commodities, but these are usually in the form of CFDs. You don’t actually own the stock or commodity, but rather only betting on their price movements.
By Martin Moni