The term broker is quite commonly used in the financial markets and therefore the forex trading market or the currency trading market is not an exception to this rule. A broker is usually a firm or a person who works in favor of a firm and they are participants of a commodity exchange and hence their primary purpose is concerned with the purchasing and selling for his own account or also in favor of other clients.
Forex refers to the currency trading market where a currency is evaluated in terms of another currency which is usually known as the base currency having a value of 1 and the entire exchange and trading procedure in the forex trading markets is dominated by what is known as the exchange rate.
In case of trading in foreign currency through forex, an important factor which is to be borne in mind is that all forms of transactions in the forex trading does not involve any physical exchange of money but rather any amount earned or lost is usually updated or deducted directly from the account of the investor.
Retail forex brokers
Retail forex brokers are the primary participants in the forex trading markets and therefore they play a significant role in currency trading. Upon extensive analysis, it has been found that there may be mainly two main types of retail forex brokers. One group comprises of those forex brokers who provide approximate and tentative guidelines for trading while there are another group of forex brokers who are instrumental in delivering the amount bought while trading to a specific bank account of the investor.
Various sources reveal that the retail forex brokers dominate the forex trading scenario and deal with over $40 billion on a daily basis which comprises about 2% of the total market share.
Forex key terms
In order to understand the functioning of the various forex brokers, it is important to note certain key terms. Each forex broker offers certain specific pip and leverage rates along with providing the size of a regular account.
The term leverage refers to the ratio of the amount which has been deposited to that of the amount which is required to be traded. in case of currency trading certain prices have to quoted and these quotes are usually expressed in terms of percentage in points which is commonly referred in forex trading as pips.
The percentage points
The percentage in points is expressed as 1/100th of 1%. The regular account size offered by most forex brokers may vary from as low as $200 to as high as $10000, while $2500 to $5000 is the usual and most common. The leverage value quoted by the forex brokers vary between a ratio of 50:1 to that of 100:1 or 200:1.
Percentage in points or pips is usually expressed as anything between 2 to 5 pips, though there are certain specific forex brokers who are willing to quote pips as low as 1 pip. Certain forex brokers also provide the facility of having mini accounts apart form the regular accounts and these are available from as low as $10 to $5000.
