The increase or decrease in the value of currencies is the thing that attracts to traders, investors and speculators in the forex market. They might buy or sell currencies in regard to their thinks about the discrepancy in value of those currencies in the future. To conduct transactions, they may need the help of forex broker as an intermediary. With over $5 trillion value of daily transactions, forex market seems to be extreme than ever. Whatever the results of your trading is a win or lose, forex broker still secretly have amount of money in their pocket by commissions and fees. You may wonder how forex brokers can make money from those things, let’s figure it out.
The Fees of Forex Brokers
We earn money from trading at forex market through forex brokers, we have to pay a fee, that’s the rule. we buy a currency at ask price but when we want to sell immediately, we have to sell it at the bid price. Interestingly, the ask price normally larger than the bid price. This discrepancy is called a spread. Brokers actually get benefit from this, and now is how forex brokers make money in details.
They are going to charge us by commission or spread per trade or both. Some brokers may come up with special offers such as free trade commission. Be aware of these offers, the spread may be broaden for a bit. You should also know when to stop forex trading.
The spread could be stable or changeable depend on the movement of the market, you may experience many emotions from this thing. If there is news or event in the market affects the interest rate, the spread will fluctuate. In other words, It could expand or shrink, and then you can earn or lose great amount of money than your expectation.
The differences in the forex brokers’ spread for trading the same currency also is a noticeable factor. And that how forex brokers make money. Therefore, you better stay alert and pay attention to detail, especially for the price.
In short, the acceptable and reasonable pricing basically come from brokers those have support from financial institutions and business relationship with forex exchange dealers for special quotes.
Foreign Exchange Trading contains many risks
Margin can be traded by depositing a small amount of margin request. This poses lots of risks to the forex market for both traders and brokers. For instance, the suspension of Euro by the Swiss National Bank, giving the Swiss franc a fairly high rating against the euro in January 2015.
Traders who mistakenly dealt on the trade lost money and failed to meet margin requirements, so some brokers struggled catastrophic losses and even went bankrupt. Inexperienced traders can also get involved in a great errors, which were accused of a 6% fall in 2016.
Anyone considering trading on the foreign exchange market must proceed with caution. There are many forex traders have lost their money due to the deception of being rich and wealthy by believing in the promise of significant profits in this narrow market.
How do forex brokers make money? The forex market is not a transparent market, each broker has its own spread calculation method. It is better to invest time and effort to investigate the best forex systems to make sure we are on the good business deal.