You probably know by now that trading on the Forex markets, involves buying and selling currencies with the expectation of making a profit on a favorable price shift. But in order to buy and sell currency, you need somebody to handle the execution as well as provide you with price quotations and spreads. This somebody is the foreign-exchange broker with whom you would open a trading account.
The Forex market is an over the counter (OTC) market, as opposed to an exchange traded market as in the case of equities. In an exchange traded market your trading counterparty is always the exchange and the broker is merely the middleman who executes your order at the price quoted by the exchange.
In an OTC market, you are trading with the broker as principal to principal and he is free to quote any prices or spreads that he likes. You do not have the protection of an exchange traded contract either by way of price or by way of counterparty risk. To put it bluntly, you are at the mercy of the broker. This is the origin of the games that many brokers like to play with their clients. They see their role as making a profit out you in an adversarial situation and will often manipulate prices and spreads to that end. They also dislike your using a moneymaking robot and will do their best to sabotage your leading up to and including closing your account.
An honest broker will provide you with the following:
- A steady flow of honest prices and spreads on a timely basis
- A steady flow of data and information on the markets that you can use for analysis. He would also provide you expert recommendations on buying and selling as well as trading signals for a fee.
- leverage if you are going in for margin trading. This may vary from broker to broker and can be as high as 300 to one.
- Access to a state of the art trading platform like Metatrader 4
It is worth looking around for a good broker, and a good automated trading software package as these will make a difference to your success in the Forex markets.
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