Forex Brokerage Firms
Forex brokerage firms play a very crucial role in the foreign exchange markets. First and foremost, they provide impetus to currency markets in a number of ways e.g. by providing an interface to buyers and sellers of currencies and by executing currency exchange transactions at their order. Further, the brokerage firms offer margin account services whereby small traders are allowed to take much larger positions in the trading market regardless of the amount of money they have deposited.
Further, Forex Brokerage firms act as advisors to importers and exporters and to corporate houses which are exposed to currency markets movement risks. Additionally, they also cater to the Forex needs of sundry clients like students and tourists who are taking their studies abroad or who tour different parts of the world. Advancement in technology, more specifically the expansion of interconnectivity across the world, has seen margined currency trading become very popular, together with the Forex brokerage firms providing the service.
Initially, the role of Forex brokerage firms was only limited to servicing big financial institutions such as banks as their main agents, during a time when the foreign exchange market was virtually off-limits to small investors due to the high cost of transaction. The internet has further let loose unrestricted flow of information on the currency market, encouraging small players in the business.
With that said, Forex Brokerage firms normally operate under certain arrangements known as limit orders, good for the day (GFD) orders, good till cancelled (GTC) orders, and stop orders. Normally, a seller and a buyer will place an order with a Forex brokerage firm to execute a deal on their behalf. They will specify the exact time checkpoints and their target rates for the transactions, otherwise known as limit orders.
The business of Forex trading involves huge amounts of money hence a trader should want to be certain that their money is handled by a trusted and reliable brokerage firm. This is where Forex brokerage firm certification becomes important. Investors are always advised to only deal with authorized and certified firms. If for example you are trading in the US, ensure your brokerage firm is fully registered with Futures Commission Merchant (FCM) and regulated by the Commodity Futures Trading Commission (CFTC).
Further, majority of these large brokerage firms are in one way or another connected to a bank or other financial institution. Because most of the business in Forex exchange is credit based, a partnership with a financial institution is critical to offer better Forex investment services.
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