What is a Currency Broker?
Currency brokers are financial professionals who are authorized to execute orders for the purchase and sale of domestic and foreign currencies. The object of the currency broker is similar to that of a stock broker, in that he or she seeks to assist investors in making a healthy return from the trading activity. A currency broker may operate as an independent broker or be connected with a brokerage house.
Unlike many stock brokers, a currency broker participates in a marketplace that is operating around the clock. Sometimes referred to as foreign exchange, or FOREX, brokers, a currency broker can accept and execute orders for an investor at any time of the day or night. Due to the relatively frequent shift in the value between any two currencies, the process of keeping up with current rates of conversion can be a daunting task. This means an effective currency broker must constantly check on the current status of how a given currency currently exchanges with another currency.
In most situations, a currency broker is compensated for his or her efforts based on the accumulation of what is known as pips. For example, if an investor wishes to exchange US dollars for British pounds, and the current rate of exchange for one British pound comes to a total of 1.7825 US dollars, the broker will complete the acquisition by selling the pounds to the investor at a price of 1.7828 dollars. From the transaction, the broker earns a total of $0.0003 USD or three pips for each pound that is purchased. Since currency exchange is usually conducted using large amounts of currency, it is possible for the broker to make a significant amount of money from conducting a single transaction of this type.
While some countries do have laws in place that apply to how a currency broker can function within that jurisdiction, the foreign exchange trading industry tends to do a great deal of self-policing. That is, when word gets around that a given currency broker is not following the general standards of conduct that the majority of brokers choose to follow, he or she may quickly be frozen out of the marketplace, even if the deviances are not in violation of any existing laws. There is a general feeling that FX brokers must maintain a high level of ethics in order to retain the trust of clients and remain successful in the business. By taking steps to ensure that clients are not being taken advantage of by a currency broker that is less than ethical, it is possible to enhance the reputation of the industry as a whole.
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