How forex brokers make money
To participate in trading in the forex requires considerable investment, and to provide individuals with access to trade there are brokers. To choose a reliable company, you first need to understand how it earns, so as not to fall into the hands of fraudsters. Brokers are intermediaries between the trader and the foreign exchange market, expressed differently, managers. The broker's job is to carry out all the trader’s orders concerning trading operations. These orders include placing orders to buy and sell trading instruments, such as currency, indices, precious metals, assets, and stocks.
How does a forex broker earn?
Of course, the broker does not do this for free but receives a percentage of each transaction. In exchange for the execution of your orders to buy or sell a certain currency, the broker collects a commission or spread. The commission is a certain amount of withheld from each transaction. The size of the commission, as a rule, depends on the volume of the transaction. Spread is the difference between the purchase price and the sale price of the currency. When you open any position, you are immediately at a loss for the value of the spread, and the forex broker accordingly makes a profit. Regardless of whether you make a profit or loss on a transaction, the broker has already taken his benefit in the amount of the spread. Spread can be both fixed and floating. Floating spread expands with high volatility or when certain news releases and narrows in a calm, stable market.
Besides, the broker can still earn on commissions for the volumes of transactions made when a certain amount is paid for an inevitable turnover, and on swaps. Usually, the broker pledges his commission in swaps, and the case of a minus collects them together with the swap from the trader’s account. In the case of a positive swap - with the accrued money. Such brokers are the most honest and most of all, interested in creating a comfortable trading environment for their clients so that they can conclude transactions as much as possible.
In general, the range of broker earnings is quite wide. They also offer various trust management services, for which they receive money, train traders for a fee, withdraw their customers to other trading exchanges and even invest their capital in various types of assets.
For example, most significant brokerage companies have their trading schools, training courses, or paid webinars. Forex forums collect traders and potential customers, where broker representatives implement training materials: from brochures and printed books to multi-edition publications. In addition, dealing centers provide consulting services, offering their clients access to private financial analytics, current news, and trading signals.
The transaction copying service is another source of income for Forex brokers. Experienced leader traders recruit followers who copy mentor's decisions and earn with him — all participants in the process of profit from social trading.
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