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A forex broker is a person who acts as an intermediate between the buyer and seller of monetary units. The forex broker is basically your go-to guy. The forex broker helps people stay connected for their buying/selling needs and helps prevent fraud or unethical trading practices. When a broker acts as a buyer/seller, they become a principal party (dealer). A brokerage firm is a company that behaves as a broker, for example FX Club can be considered a forex brokerage firm. Forex brokers can come from large commercial financial institutions. These forex brokers are highly regulated because of the legal commitments and regulated governance of financial institutions. The small forex brokerage firms are in greater demand from dealers and traders because they have more intimate contact and lower upfront investment minimums than the large financial institutions.
Since large financial institution forex brokers often require a $500,000 to $1 million dollar trade minimum, most people go with a private or smaller forex brokerage firm. However, it is important to note that forex brokers must be able to have a wide amount of leverage, and so they are usually tied to the larger financial institutions. You want to ensure that any forex broker you choose is registered with regulators. FX Club, for example, is a Futures Commission Merchant (FCM) which is registered with the National Futures Association, and therefore is regulated by Commodity Futures Trading Commission. It is very important that you check FCM before signing with a forex broker to ensure that they are registered, and therefore are accountable to behave in a legal and ethical manner. Furthermore, it is recommended that you research the forex broker to ensure they are licensed and examine the amount of time they have been a forex broker. Longevity in the forex broker industry shows that they are stable and reliable. It is highly recommended to find a forex broker that has longevity, stability, and is a member of the FCM. In this manner, you are protecting your investment.
|Jennifer Mathes, Ph.D.|