Many of you must have seen shiny forex trading ads claiming a great number of profits and high leverage. Although it would not be appropriate to say that all the allegations are bogus, one can safely say that the allegations are always inflated to attract gullible investors. No doubt, it can lead you down the path to prosperity provided you are well equipped with the right strategy and in-depth analysis.
Here the need for a Online trading comes into the picture. This article discusses the meaning and rationale for the existence of brokers in the currency market.
As many of you must know that forex trading is basically OTC (Over-the-Counter) nature. Now, what do we mean by OTC? OTC stands for "Non-Exchange Traded". Let me explain this a little more. In the case of stocks (stocks) and futures contracts, trading takes place on one or more exchanges. In the case of OTC products, which includes Forex, the buying and selling are traded between private parties and they are near any trade you may enter into stocks and futures.
This represents the bulk of the total global currency trading.
Now you may ask how can we start trading with a few hundred dollars as many ads claim that you can definitely start with small amounts like $500? This is possible due to brokers.
Although the majority of forex trading takes place at the level of banks and FIIs, forex brokers facilitate retail forex trading as individual investors can trade forex for a small amount at reasonable rates.
Forex brokers act as a link between the large market (where large traders such as banks and FIIs trade) and individual retail traders.
So why do we need brokers? The first and most important reason is to facilitate the entry of individual retail investors into the forex market although indirectly, through forex brokers. Brokers trade in bulk for all small retail investors.