Written by in Business on October 23, 2022
You might understand the term forex – or foreign exchange – and the concept of a broker, but many people aren't sure what forex brokers are and what they do. The foreign exchange space can be pretty confusing. Grasping the idea of how a broker could help you and what services they offer can be a bit tough on the brain. Between the questions we get asked and amount of people heading to Google to ask, "What is a forex broker?" or "what does a forex broker do?" we figured this is a topic worth exploring. So, we've got answers if you're among the many folks asking these questions.
A forex broker is a financial service provider that helps you buy and sell currency. They act as the middleman between their clients (individuals or businesses) and the interbank. The interbank or interbank market is a global network that connects financial institutions around the world. This network enables currencies to be traded and banks to communicate and transact across borders.
Forex is regulated by several governing bodies and a set of standards to which all brokers must adhere. Forex brokers are registered and licensed. They also undergo regular audits to ensure they transact compliantly, lawfully, and ethically. There is no centralized government body controlling the forex market, but several bodies worldwide. One broker or brokerage may need to adhere to municipal, state, and federal regulations all at once. Further, there are additional requirements based on the countries they transact with.
A big reason behind brokers is that they are registered and can participate in global markets. Beyond that, they are experts in the area of foreign exchange.
So, what exactly do they do? Good question. Brokers give you access to global trading platforms and facilitate trades on your behalf. For any individual or business that often transacts in foreign currencies, say, a company that buys supplies from another country or a person who pays HOA fees for their home across borders, a forex brokerage helps you protect yourself from loss in the face of currency fluctuations. They work with you to understand your risk tolerance and help you set up a forex strategy that best suits your needs.
Many forex brokerages have additional services to support their clients in the global marketplace, for example, an international payments platform or multi-currency accounts. Here's an idea of who might use their services to give you a clearer picture of what a forex brokerage does.
A business owner might engage a forex broker or brokerage to buy or sell goods internationally, pay staff and contractors abroad, receive payments in multiple currencies, and so on. In this case, the broker would help manage risk, reduce cost, and support foreign exchange strategies to enable future global economic growth.
Next would be an accountant who needs support in their cross-border financial procedures. The broker would listen to the company goals and help determine the best strategy for their unique business.
Investors may use forex brokerages if they are interested in buying high-ticket items from other countries. These items would include cars, boats, homes, etc. A forex broker can help reduce the cost of foreign currency transactions and enhance their security in their large, cross-border transactions.
There are plenty of other use cases, but it mostly comes down to any individual or business who needs to transact in more than one currency regularly or at a large volume. Brokers are crucial providers in any international transaction. Diving into the global market without a broker is committing to a ton of potential for losses. To learn more about risk management, download our free white paper today.
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