Trading forex through a bank
These days, currency trading at Forex is available to everyone. A great number of people come to this market every day and try their hand at currency speculation.
However, not many people think about how money enters the market, where it is kept and what happens during trading. Traders are mostly concerned about fast and easy entry and exit of their funds, transparent trading conditions, informational and technical support.
The minimum deposit amount and the possibility of working on cent accounts are also important for beginners in Forex trading.
No one can trade on Forex market by him/herself. For that there are intermediaries. The choice of such intermediary is very important for daily work of trader. The Internet is full of advertisements of various organizations, which offer the most favorable conditions for access to the Forex market. It is quite difficult for a person, who has decided to trade on the currency market, to make sense of all these offers. How to do it and which intermediary to choose? What are brokers and bank brokers in particular? You need to have an understanding of how things work.
Participants of the Forex market
- The Forex market is a generalised concept. Actually, trading takes place on the world stock exchanges, where contracts for selling currencies are put out and bids are made to buy.
The minimum volume of a contract is 5 million dollars. Only licensed participants are allowed to trade on stock exchanges. Participants on stock exchanges include central banks, commercial banks, large international companies, large brokerage firms and various investment funds. Each of these participants has its own purposes in the international exchange market. We will focus on the purposes and role of brokerage companies.
A broker is an intermediary who enters into exchange deals on behalf of his clients. He receives a commission percentage of the transaction amount. There are two main types of brokers in the Forex market. They are brokerage companies and bank brokers. The difference is that brokerage firms keep their funds in the accounts of commercial banks, while bank brokers operate with their own capital.
Financial institutions with direct access to stock exchange trading are called prime brokers. The clients of prime brokers are the various brokerage companies in which most of the ordinary traders trade. Basically, these brokers operate on an aggregate position basis. They collect buy and sell orders and then sell or buy the difference from the prime broker. The prime broker, in turn, collects a pool of such bids and enters into a contract on the exchange. This is, of course, a simplified scheme. Brokers can open accounts with each other, with broker banks, etc. For example, ECN technology has recently become widespread. An electronic communication system connects traders and prime brokers directly. However, again, prime brokers provide access to this system.
All the brokerage companies have different working methods and terms of access to the Forex market. The main difference between them is licensing and regulation of the activity by national and international regulators. The task of a beginning trader is to choose a broker according to his knowledge, abilities and desires.
There are many unlicensed brokerage companies and dealing centres where it is very easy to open an account. Deposit replenishment with such brokers is possible through different electronic payment systems, where everything is also very fast. However, it is not recommended to risk much money with such brokers. And more experienced traders try to trade at Forex through the bank.
Forex trading via the bank
For traders operating with big sums it is more preferable to trade at Forex via banks. Who are the bank brokers? They are banks, which partially or fully participate in the currency exchange business and which provide market access services to individuals.
Importantly, any banking activity involves government licensing and regulation. Traders become clients of a bank and receive appropriate protection for their money. You can only trade through a bank by opening a nominee account with the bank. Such accounts are insured by the law of the country where they are registered.
Apart from guaranties of safety of money, trader gets more reliable access to the market, which is reflected in low commissions, quick execution of deals, and accuracy of quotations. In case of conflict situations, issues are resolved quickly and fairly, as banks value their reputation.