Best Brokers
How do Brokers Work?
Have you ever wondered how brokers work and how they actually make money? After all, they’re not charging you a commission to do your trades like stock or commodity brokers would, so they must be the nicest people in the world, right? The truth is, they do charge you a “hidden” commission, which is included in the spread.
In the table below, we’ve highlighted our top 3 brokers (with the lowest spreads), allowing you to make the biggest profits on your trades.
Best Brokers
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Risk warning: 77% of retail CFD accounts lose money.
Best Social Investment Network
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Risk warning: {etoroCFDrisk}% of retail investor accounts lose money when trading CFDs with eToro.
I don’t know about you, but I’d rather pay as little spread as possible on my trades. After all, the less spread I pay, the more money I get to make and keep. So why do we need a broker anyway since they cost us money? The simple answer is, they allow us to execute our trades in the cheapest possible way, and therefore they are well worth the spread that we pay them for this service.
Best Forex Brokers and Reviews
What Do Forex Brokers Do Anyway?
Before the advent of online Forex brokers, if you wanted to do a foreign exchange transaction, you would need to call your local bank and get them to quote you a price. Compared to the couple of pips in spread that you would be quoted by your Forex broker, the spreads that the banks would quote you are ridiculous. I’m talking about bid/ask spreads that are a few hundred pips wide!
Clearly, there was an opportunity for online Forex brokers to capitalize on the exorbitant rates that the banks were charging by giving individual Forex traders access to trade the markets. As the public interest in Forex grew, so did the demand for Forex brokers. These days, just about anyone can trade Forex using their home computer and even their mobile phone, and that’s thanks to the infrastructure that Forex brokers have set up to allow you to place orders into the interbank currency network.
In a nutshell, Forex brokers allow you to access the Forex market and trade any currency pair you want, from the major pairs to all kinds of exotic crosses. In exchange, they tack on around a pip or two in extra spread to cover their costs and protect themselves from market risk. To put things into perspective, if you were to set up the systems yourself and buy the right to have the same access to the interbank currency network, you would be paying in the millions of dollars for that privilege!
Clearly, Forex brokers provide a very valuable service to Forex brokers, allowing us to enter and exit trades, place stop and limit orders, and view up to date price data from any computer with internet access. This is no small feat!
Introducing Brokers And Executing Brokers
Because it’s so expensive to set up the trade execution system and get access to the interbank currency network, there are brokers classified as “introducing brokers” or IBs who partner with brokers with execution capabilities to “piggyback” on their systems. In other words, they function like a broker in every way except that they do not directly execute orders through their own system. Instead, they send in the orders to the executing brokers to be processed into the market. Typically, these introducing brokers will be paid a commission for the trading volume that they bring to the executing brokers.
It’s easy to confuse introducing brokers with affiliates, but they are totally different. Affiliates will introduce new business to the executing brokers, but once the client has opened an account, then the client “belongs” to the broker. However, the introducing broker actually maintains their own client roster, and only technically outsources the execution part of the process to the executing broker. It’s quite common for introducing brokers to change executing brokers from time to time to provide a better quality execution. However, sometimes it happens that the execution capabilities go downhill as well.
All in all, brokers provide a very valuable service to us Forex traders.
Our recommended CFD broker:
This is a higly recommended broker. Enjoy risk-free trading with their free demo account! (Risk warning: 76.4% of retail CFD accounts lose money.)!
