The foreign exchange market (sometimes referred to simply as the “exchange market”) is the place where different currencies such as yen and dollars are exchanged (buy and sold).
- Various events in the world require the exchange of different currencies. For example, there are cases where the yen is exchanged for foreign currency at a bank when going abroad. The importing company procures foreign currency in consideration of yen for payment overseas, or domestic investors procure foreign currency.
- There are also cases where the yen is exchanged for foreign currency when buying or selling denominated financial assets. To meet these various needs, there is a foreign exchange market to trade (buy and sell) currencies of each country.
- However, the term “market” does not refer to a specific place or building like a fish or vegetable market. Still, it is an abstract concept that indicates the entire transaction within a particular framework and many of them. Transactions are made through telephones and electronic devices.
- Foreign exchange market transactions are (1) transactions conducted by individuals and companies with financial institutions (called “customer transactions” from the perspective of financial institutions) and (2) transactions conducted directly between financial institutions or through foreign exchange brokers. It can be broadly divided into two types (“interbank transactions” in the foreign exchange market).
- Forex broker in India is also called a “forex broker” and is a trader who mediates foreign exchange transactions in the foreign exchange market (interbank market). Our main job is to intervene in foreign exchange transactions in the interbank market, and although we do not have a position myself, we play an essential role.
- Specifically, it is convenient for financial institutions that do not want to make direct transactions between banks but want to participate in the interbank market. It also plays a significant role in collecting information for foreign exchange dealers. Due to changes in the times, most current brokerage transactions are “electronic transactions” in which computers automatically close transactions.
What Role does Forex broker in India Play
- Forex brokers take the seller and buyer of a forex transaction in the interbank market, close the transaction, and receive a brokerage (commission) from both parties when the transaction is completed.
- By the way, most of the videos and photos of foreign exchange transactions that often appear on TV and newspapers are in the brokering room of foreign exchange brokers.
Forex broker in India brokering method
There are two types of actual forex trading, ” voice brokering,” in which humans mediate transactions, and ” electronic brokering,” in which computer systems mediate transactions. Most of today’s transactions are electronic. It is a broker.
Factors behind the rapid growth of electronic brokerage of Forex broker in India
Currently, electronic brokering accounts for more than 90% of broker transactions in Interbank forex trading, and the factors behind its rapid growth are as follows.
・ Low transaction brokerage fees
・ No human error in transactions
・ Reduced paperwork costs and labor
・ Easy risk management such as credit management
・ Improved system convenience
What is a Forex broker in India?
In any active foreign exchange market, there are many foreign exchange brokers (Exchange Dealers) called (Exchange Traders) in the United States. As the Role of brokers in the stock market, foreign exchange brokers (Brokers) act as intermediaries in the foreign exchange market ( The Role of Intermediaries), to earn commissions, negotiate foreign exchange transactions for customers on behalf of customers; between buyers and sellers, attracting and merging, through the contact of foreign exchange brokers, directly or indirectly from banks.
Forex brokers and brokers themselves do not bear the risk of profit and loss in foreign exchange transactions. The price of their intermediary work is Broker Fee or Commission. Forex brokers are familiar with the supply and demand situation of the foreign exchange market, analysis of news and charts, and exchange rate changes. Ups and downs and trading procedures, so investors are happy to use.
There are two types of foreign exchange brokers: general brokers, which participate in foreign exchange transactions with their funds and are responsible for their profits and losses. At this time, the brokers are self-employed; street brokers, that is, they conduct foreign exchange transactions on behalf of customers and only charge commissions and do not bear the responsibility— any risk.
How to choose a Forex broker in India
- Forex margin brokers are numerous and come from different countries and regions. On the surface, these brokers seem to be similar, which causes many difficulties for investors new to the foreign exchange market when choosing. When investors choose, there are several types :
- Affordable type: see spread sizes and whether to open account commissions and other promised benefits.
- Convenience: see if there is a free phone number, whether there is a forum, whether the website is in Chinese, and so on.
- Passive: Listen to the recommendation of the recommending agent or friends around you.
- Independent type: refer to others but do not blindly follow, and conduct comprehensive investigation and comparison through oneself.
There are more investors in the top three categories in an emerging market. In Asia, there may be cultural and geographical factors. Compared with the US market, more investors are in the top three categories. Objectively speaking, the first three types of investors’ selection methods have shortcomings.
As the market develops, the number of Type 4 investors is increasing, and they ask many deep questions and make a lot of comparisons before opening an account. There are two focuses for such investors: first, the broker’s credibility, which involves the security of funds and the execution of orders; second, the technical performance of the trading platform, whether the platform is stable, and whether the exchange rate in real-time.
One of the essential bases for choosing a foreign exchange broker is to see whether the country where the broker is located has a regulatory agency registered with the regulatory agency. Regulators usually formulate corresponding regulations, which restrict brokers’ behavior to varying degrees while trying to protect the interests of customers. Investors can use their website to check the broker’s registration status, file a client’s lawsuit, or file a complaint.
The online foreign exchange margin business started in the European and American markets in the late 1990s. It should be regarded as just the beginning. Due to its high risk and speculative nature and the complexity of supervision, governments of various countries hold different attitudes. But some European and American countries and Japan and Hong Kong have begun to accept foreign exchange margin and supervise it.
Countries or regions that regulate foreign exchange margins include the United States, the United Kingdom, Australia, Canada, Japan, and Hong Kong. They vary in the degree of regulation of foreign exchange margins. But the common feature is that the specification of foreign exchange margin mainly refers to the rules of securities or futures, not a separate item. When necessary, particular guidelines or clauses are issued to supplement them, such as the United States and Hong Kong.
Forex broker in India Income Calculation
- According to each standard lot in the international foreign exchange market (100,000 US dollars, which is also the basic unit of foreign exchange transactions), 1 point represents 10 US dollars. The foreign exchange margin is traded at 100 times magnification; in other words, one lot can be sold for every 1,000 US dollars. Let’s take a customer account of $10,000 as an example to calculate the monthly rate of return of the customer’s broker.
- If the customer places an order based on the ratio of 2 lots of USD 10,000 and makes 3-5 transactions per day, the percentage of one-month spread income is:
- That is, the broker’s spread income is 6%-10% per month. Since the buying and selling spreads exist objectively, we might also call the spread income of foreign exchange brokers ” fixed income. “
- If the broker adjusts the client’s commission to 3 points or places an order based on the ratio of 2 lots of 10,000 US dollars and makes 3-5 transactions per day, the percentage of one month’s commission income is:
- That is, the brokerage commission income is 36%-60% per month. Since it is up to the broker whether to adjust the commission and how much to adjust, we might as well call the commission income of a foreign exchange broker “floating income. “