There are different types of brokers. Some of them, such as Forex Time, provide top-notch services including trading CFDs, while and others do not offer the necessary security guarantees for users. Although the term “broker” is widely used, it is not always done properly. That is why we will try to explain this concept in the clearest and most concise way.
Forex Broker: Concept
The concepts of broker and Forex broker are similar but not identical. The difference lies in the type of markets in which each of them operates. While Forex brokers are limited to making investments in the currency markets, brokers, as a general term, operate in any other type of market: raw materials, precious stones, real estate, etc.
The broker, as an entity, can be a person or company that is the most common. This entity is engaged in operations in the financial markets on behalf of its clientele. In the case of brokers operating in Forex, their investments consist of buying and selling the different currencies that exist on the planet.
To work as a broker, you must be in possession of the corresponding license. Brokers, both physical and virtual, should be duly regulated by the country in which they have established their fiscal residence. Properly regulated brokers are provided with a series of extra features (calendar, updates, alerts, etc.), which are very useful when making investments.
Its functions are very similar to those of conventional brokers. The main difference is that an online broker interacts with the customers digitally. In this way, the website serves as a platform not only for the purchase and sale of currencies but also for informing and advising investors.
Operating through the Internet with access to digital tools is highly advantageous for investors. Among its advantages, there is the possibility to operate at any time and from any place, since the Forex market operates 24/7. This option, in addition to comfort, also means paying less commission than conventional brokers.
Is a Broker the Same As an Agent
Each market has its agents: brokers, Forex agents, etc. The fundamental difference between a broker and agent is that the latter can operate in the markets for both oneself and third parties, the broker only executes purchase orders for third parties, in exchange for a commission.
Another more subtle difference is that a broker is limited to acting as an intermediary, while an agent provides a broader range of services, such as personalized advisory services.
Broker and Trader: What’s the Difference
Another most common confusion is the difference between a broker and a trader. Even though it is quite obvious: a trader or investor is engaged in buying and selling, while a broker only performs intermediary functions.
Another basic difference between these two roles is the following: traders earn money that is the profit margin they get between buying cheap and selling expensive. Brokers, meanwhile, get their benefits from the commission they apply to the trader for the service they offer.