The foreign exchange market is huge and is considered one of the largest and most powerful financial markets in which many categories trade, which makes the enormous liquidity in it a target for many traders and investors around the world, and the role of brokers here is great because it was then limited to banks and financial institutions that only allowed small individual traders to trade.
Since there is a connection between you and the forex market, you must choose the brokerage company in which you will conduct foreign exchange transactions from market to trading, and in this article, we will discuss the types of brokerage houses and the difference between them. How to choose the right forex brokerage firm
Types of forex brokers
Intermediary institutions in the foreign exchange market are divided into three main types according to the mechanism of executing your trading orders in the market:
- Market makers
- Electronic Communication Network -ECN
- direct processing
First: Market Makers:
The vast majority of foreign exchange brokerage firms are market makers. These companies buy currencies from banks and rate providers via the interbank market and then sell them to traders for the price difference between the buy price and the selling price. The profit margin with the spread is often fixed and usually slightly higher than its peers.
Second: electronic communication networks
This type of broker executes buying and selling orders directly on the interbank market at the best available rates and in return receives an additional commission, i.e. a profit margin or variable spread.
Third: direct processing companies
This type is a combination of the previous two, firstly based on matching the orders of the traders as a market maker, and then automatically forwarding the remaining contracts to the market or another market maker outside the company, for an additional commission in exchange for execution. This type has a variable spread and is usually lower than market maker-type companies.
How do you choose a suitable forex brokerage firm?
In the following points, we examine the important criteria and aspects that must be considered when choosing a brokerage firm to ensure its validity and whether it will prevent you from trading in the foreign exchange market. It can be seen as a list of conditions, and a company that meets these conditions can be nominated for trading through this list.
Does the company offer swap-free accounts?
Trading in the currency market takes place through the system of pairs, that is, trading takes place for each currency against the opposite currency in the currency pair.
Each currency has a different interest rate, so there is an alternative interest or swaps, which is the difference between the interest rate of the first currency, or what is called the base currency, and the second currency, which is called the counter currency.
This difference is the percentage added to or subtracted from the account each day at 10 pm (GMT) if the deal was entered into, i.e. if it was opened before that date and remained open thereafter.
If the interest rate on the currency you are buying is higher than the interest rate on the currency you are selling then it will be in your favor i.e.
swap interest will be credited to your account so that the rollover or swap value is positive but when the interest rate of the currency you are buying is lower than the interest rate On the currency you buy by selling, it will not be your interest, i.e. the amount of rollover or swap will be deducted. Calculation and its value will be negative
Is the company registered with a recognized regulatory agency?
The fact that the foreign exchange market or forex market is traded over communication networks or the system known as the OTC system does not mean that it is not subject to the regulatory or supervisory authorities that monitor the work of intermediary institutions and their dealers in cases of fraud or fraud. Forgery.
harm the interests of customers. Every country has its regulatory oversight bodies over the financial markets. Brokers in this country must be subject to it.
The primary function of the authorities or regulators is to protect investors or traders from any manipulation that brokerage firms or financial services may do against the interests of their clients.
It should be noted that some unreliable brokerage firms are registered with weak regulatory bodies that cannot be trusted or resorted to in case of manipulation or a problem that harms the client's interests. Sometimes some companies claim that they are registered with any of the brokerage companies or use the similarity between the name and the name of another registered company.
so it is necessary to check the company’s registration number with the regulator through the official website of the regulator. Because each company has a registration number and a special file with the regulatory authority in which it was registered.
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Forex trading