Forex brokers invariably say they earn money primarily off the spread (the gap between the ask and bid price), but many of them derive only a small percentage of their annual income from spreads alone. To further illustrate this, consider the stock market.
The vast majority (over 90 percent) of traders and investors obtain their incomes from one or more means through which they receive regular information on company performance. Information such as quarterly reports on profits and losses, profit and loss analysis, balance sheets, etc. With forex trading, you get the second part of the pie – the information about spreads and the varying spreads offered by different forex brokers.
However, while forex brokers differ in their execution of an order, they generally follow a set of rules and regulations. When it comes to forex trading, you have four types of forex brokers to choose from; professional, residential, commercial, and international.
Professional forex brokers often select fewer trades than the average trader, placing them into different accounts. While some forex brokers do not charge commissions on all transactions, the most popular ones like FXCM and Better Business Bureau (BBB) do.
Residential forex brokers tend to be smaller firms with less expensive trading accounts. They typically offer lower rates and less customer support than their commercial counterparts. But many offer higher rates of return when using the larger of trading accounts.
Many of them also offer higher transaction fees to customers for small transactions. So, it helps to think or swim if you are looking for a broker with high rates of return. However, keep in mind that these larger account providers may not offer as much customer support compared to smaller ones.
Commercial forex brokers vary widely in the commissions and fees they charge their customers. The typical commercial broker charges up to 10 percent of the full market spread and pays one flat rate for all transactions. These brokers do not provide any kind of customizable trading options. So, it is important to read their terms carefully before signing up. They have very high commissions and are worth considering if you want more control over your trades but don’t want to pay the high spreads.
International forex brokers are usually not accessible to U.S. traders. In some cases, an international broker may be required, but some companies cater specifically to overseas clients. These brokers typically have lower spreads than their domestic counterparts and offer higher commissions. Since these brokers have higher transaction fees, however, it is best to only use them if you plan on trading for larger amounts or can secure a discount.
Day traders and short-term traders
Day traders and short-term traders have their own needs and advantages. For day traders, the main advantage is the fast and effective results they can receive from their trading experience.
They need to be able to obtain a quick analysis of the market activity so they can act quickly and make decisions based on real-time information. Since the 24-hour market activity is so fast-paced, it is tough for day traders to get a detailed analysis of the market.
Short-term traders will typically use a trading robot. A good forex broker will offer a variety of trading robots to their customers. The robot should be properly equipped to analyze the market and provide a good analysis in real-time.
Since these robots will perform all of the trading decisions, these robots will take the place of an actual broker and allow the trader to save money on commission costs. Forex brokers are a great choice for anyone interested in forex trading since many offer high-quality services at affordable prices.