Jayden Before you can officially trade forex, you need to open a forex trading account with a forex dealer. So what is a forex trading trader, or more precisely what is a forex broker? In the simplest terms, a forex broker is a natural person or a company that executes buy and sell orders on the orders of traders. A broker can earn commissions or remuneration for services rendered.
Perhaps you are surrounded by a large number of brokers before you even open an account. You will need to spend some time deciding which broker to choose by doing your own research. The time spent is worth it, as though your research you will have an in-depth understanding of each broker’s range of services and fees.
How to choose a forex broker? This is not an easy task and you need to consider many issues. The legitimacy of the broker is the first issue that should be considered. The question of whether the broker is able to meet your trading conditions also needs to be carefully checked.
There are many of these types of Forex brokerage firms in the United States, Europe, Australia, South Africa, India, and Hong Kong. They are usually subject to financial regulation in many different countries, as they generally provide services to many countries around the world.
The spreads offered by these brokers vary from high to low, generally, the spreads of the popular brokers are much lower. The leverage they offer may be different, mainly due to the fact that they accept different financial regulations. The current leverage offered by brokers under US financial regulation is 30:1. The leverage offered by brokers under UK financial regulation is also very low, also 30:1. Brokers around the world can generally trade roughly the same variety of products. Some brokers may have a wider range of products that can be traded, such as stocks, cryptocurrencies, etc.
Who is our favorite Forex broker today in 2022? In the US and Canada, Forex.com became our favorite broker. In Europe, our favorite broker is IC Markets. In other countries and regions, we still consider IC Markets to be the best choice. There are very few countries and regions where IC Markets cannot provide services. We can choose other brokers, such as FXTM instead of IC Markets.
I can remember FXCM was a favorite broker for many people 10 years ago, both in the US and in other countries and regions. However, after the black swan event of CHF on January 15, 2015, FXCM took a big hit.
This black swan event was mainly at the time of the announcement of the Swiss bank’s interest rate resolution. The Swiss bank had previously insisted on a minimum quote of 1.2000 for the EURCHF rate, but after this interest rate resolution was announced, the Swiss bank abandoned the minimum quote of 1.2000. The EURCHF rate fluctuated by 6,250 pips in a few minutes, going up by about 1,000 pips and then down by about 6,000 pips.
Many of FXCM’s clients’ account balances became negative. FXCM’s clients were not responsible for the negative balance, but FXCM had to pay the debt to FXCM’s upstream liquidity (market quotes) provider (a large bank) for the negative balance.
In the years since, FXCM has been forced to sell many of its non-core assets to pay off its debts, including DailyFX. Today, FXCM is not as popular as it was 10 years ago. It is clear that brokerage firms are also risky.
Forex.com was minimally affected by this Black Swan event. This is because they warned their’s subscribers a year before the outbreak of that event not to trade EURCHF and significantly reduced the leverage of the EURCHF currency pair. Their users lost interest in trading EURCHF as a currency pair. Only a small number of people are trading. At the same time, the lower the leverage, the lower the trading risk for the users. The risk that the broker has to take is correspondingly lower. Even if a user’s account has a negative balance, that negative balance is much smaller than the one generated by FXCM’s clients. That’s why Forex.com is not greatly affected.
Other brokers around the world may have been affected by this Black Swan event, but not as much as FXCM. The main reason for this is that FXCM had the largest trading volume at the time. Their company’s risk control team was not fully prepared for it. Or their company’s risk control team is not doing a good job of balancing the risks and benefits of the company. Or perhaps the company’s top leadership values the absolute leadership of the company in terms of the trading volume. There is a reluctance to reduce the risk of financial events by reducing leverage to users. Because it will reduce the company’s trading volume.
We can see that after the Black Swan event in 2015, if a major risk event is likely to occur in the financial markets, brokers usually reduce the leverage of their users’ trades to reduce their own firm’s risk. Because they are afraid that a tragedy will happen again. No one wants to be the second FXCM.
IC Markets was a small company in 2015, and even if this black swan had an impact on it, I believe the impact would not be significant. This is because of few clients among the smaller brokers trade niche pairs like EURCHF. Naturally, they are much less affected by this black swan.
IC Markets is the first to admit that slippage will always exist in ECN account types. At least that’s what I thought. At the time I was looking for a broker that would not have slippage in ECN accounts. I checked out a lot of brokers. Some brokers would deliberately not talk about this issue, and some would say that their ECN account types do not have slippage, but after I tried with real money, there was still slippage in ECN account types.
Perhaps IC Markets’ courage to admit that slippage will always exist in ECN account types is the reason why it has grown to be the most popular broker today. Honesty is the hardest thing in the business of a company. Especially in the financial field, if someone can do this one thing well, then the future of this company is definitely worth looking forward.
