Understanding Forex Brokerage

     Forex brokerage connects retail forex market with the retail forex traders. Forex market is also at other times referred to as interbank since banks trade with other electronically and the prices of the commodities might change as from one bank to the other. Forex trading account is just like a bank account where one can buy currencies and hold them. It is also worth noting that these currencies are usually purchased in pairs. That means that if one buys Euro against the US dollar, one is holding for the US dollar to become worth less against the Euro over a period of time. Therefore, for one make a profit in that transaction, the Euro must be worth more over that period of time.

    Forex brokerage offers an investor means to get into the business with the banking networks and buy the two currencies in an easy way. In the past, forex brokers were people who had special relationship with banks which enabled them to buy foreign currencies. These brokers had to have a lot of money in order to buy the foreign currencies. Forex broker make money by taking some of the money whenever an investor makes profit. The change in relationship between any pair of currencies is measured in pips. Therefore, when an investor makes trade, the forex broker charges the investor in form of a few pips.

     The exchange rate between the Euro and the US dollar maybe 1.30 as the purchasing price but when an investor comes into the play, the broker might change the price to 1.31. This is referred to as spread. The amount might seem to be small but the stock broker knows that he will still make money due to the fact that the transaction might involve huge sums of money. That is how these forex brokers make their money. They offer investors forex leverage.