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How do forex brokers make their money?

Dated: 2016-12-01

Forex brokers offer their services without charging a fee. GFT forex brokers are very similar to the Forex brokers and they get their share of fee from the other trading activities like purchasing, selling, holding foreign currencies, interest accrued on funds deposited and rollover fees. The Forex brokers do not charge anything extra from the investor. An experienced and veteran forex broker has years of rich experience which prove to be useful in understanding the markets and also guiding the investor accordingly.

forex brokers

It is really amazing how the brokers offer their services without charging a fee for it. The services rendered by a forex dealer are very similar to that of a middleman. Let us take for example as bread middleman. This person purchases bread from the wholesale market at a wholesale price, he then sells it to the retailer. The difference he makes is his profit. In case the bakery store needs to replenish further stock of break, they would contact the middleman. The difference which the middleman charges is his brokerage and his profit as well.
The forex market is very similar to this. The price at which the currency is purchased is called the ask price and the price at which it is sold is the bid price. The essence of the forex market is to buy low and sell high. An experienced forex broker would accordingly advise the trader when to effect buying and selling. Stock and futures market brokers do charge commission on the trades and transactions effected. The forex broker does not charge anything from the investor.

The forex broker purchases the currency from the trader at 1.1967 and the trader purchases the currency at 1.1971. The difference in the amount is the forex broker’s commission. The price gap which is there in each and every transaction is his profit. There are many trades effected by the forex broker day in and day out and the forex broker literally mints money. 0.0001 is called as the pip. In the above referred example, the forex trader makes 4 pips. When calculated in dollars, if the forex contract amount is 100,000$, the total transaction amount works out to 40$ or 4 pips. The mantra in forex trading is that tighter the spread, it is better.

Many forex brokers also offer demo trading accounts which make trading easier and hassle free. The trader is able to practice on these demo trading accounts using virtual money. This makes it easier for the trader to do real time trading. A trader only needs to have a computer and internet connectivity and connectivity to the broker’s website to enter into trading business. The software programs enable the trader to be successful in forex trading. It is important that you select a trustworthy and experienced broker who would be able to guide you properly.