Forex brokers can be a firm or individual that sets up a currency sale between a buyer and a seller. In equity markets the broker makes a commission on the sale of a stock but in the forex market the broker makes money on the spread at which the currency was bought and then sold.
The spread is the difference between the prices at which a currency is bought and then resold. A pip is the smallest increment in the price of a currency. For example a move from 0.9008 to 0.9009 is one pip. Forex brokers can be compared on the basis of the spread they charge. Most brokers publish live or delayed prices on their websites with their profits calculated in the price. An investor can then compare the spreads. One needs to check if the spreads are fixed or variable. These variable spreads seem small and look like a good deal when the market is quiet, but when the market gets busy the forex brokers increases the spread. This means that the investor will gain only if the market is favorable.
Currency brokers are required to have a license. Forex brokers are required by law to register with the Futures Commission Merchant (FCM), and are regulated by the Commodity Futures Trading Commission (CFTC). Forex brokers are usually associated to large lending institutions and banks. This is because of the large amounts of money traded on the forex markets.
A growing trend among currency sellers is the growth of online forex brokers. These are brokers who offer trading opportunities to retail traders using internet technology. With these facilities, anyone who has a computer and the internet can trade in the forex markets.
