Forex Brokerage Firms

By: Eric Morris

Foreign exchange brokerage firms play a crucial role in currency markets. They provide momentum to currency markets in various ways, such as by offering an interface to sellers and buyers of currencies and by executing transactions at their behest. They also offer margin account services, under which small traders can take much larger positions in the markets as compared with their deposited money. These brokers also act as advisors to exporters and importers, as well as to corporate houses exposed to currency market movement risks. In addition, they also cater to the forex requirement of miscellaneous customers like tourists and students who are studying abroad.

Margined currency trading is becoming increasingly popular with the expansion of inter-connectivity across the globe; so too are the brokerage firms providing this facility. Earlier, forex brokers' role was limited to servicing big banks as their agents, at a time when currency markets were practically off-limits to small aspirants due to high transaction costs. The Internet has also unleashed unrestricted flow of information on currency market operations, inviting small players into the forex trading business in hordes.

Forex brokers usually operate under arrangements known as limit orders, good till cancelled (GTC) orders, good for the day (GFD) orders and stop orders. Usually, buyers and sellers of currencies place an order with their broker to execute deals on their behalf. The sellers and buyers also specify time checkpoints and target rates for executing transactions. These are called limit orders. A GTC order is cancelled at the order of buyers and sellers - the dealer cannot cancel the order on his own. Otherwise the order remains active for the entire day of trading. A GFD order remains active in the market until the end of a day's trading. A stop order is issued by buyers and sellers to limit their potential losses from a transaction.

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