What is a Forex Broker? (And How They Make Money)

The Role of a Broker

A broker is an intermediary between you (the trader) and the interbank currency market (banks like JP Morgan, Deutsche Bank, etc.).

In simple terms, if you want to buy or sell currencies, you cannot just go to a bank and ask to trade EUR/USD leverage. You need a broker to provide you with:

1. The Platform: (e.g., MetaTrader 4 or 5)
2. The Liquidity: Matching your buy orders with sell orders.
3. The Leverage: Lending you capital to trade larger sizes.

💰 How Do Brokers Make Money?

This is the most common question. Brokers typically make money in three ways:

1. The Spread

The difference between the buy and sell price.

• Buy Price: 1.0002
• Sell Price: 1.0000
• Spread: 2 Pips
• The broker keeps these 2 pips as profit.

2. Commissions

A fixed fee per lot traded. This is common in "ECN" or "Raw" accounts where spreads are zero.

• Example: $7 per round turn for 1 Lot.

3. Swaps (Overnight Fees)

Interest fees charged if you hold a position overnight.

Types of Brokers

Not all brokers are created equal.

🛡️ A-Book (ECN/STP)

These brokers pass your trades directly to the banks. They make money on commission/spreads and do not trade against you.

• Verdict: Safest option.

🎰 B-Book (Market Maker)

These brokers take the other side of your trade. If you lose $100, they make $100.

• Verdict: Conflict of interest. Avoid if unregulated.

Choosing a Reliable Broker

When selecting a broker, always check for:

• Regulation: Are they licensed by reputable authorities (FCA, ASIC)?
• Platform: Do they offer MetaTrader 5?
• Support: Is there local customer support?

Approved Broker vs Typical Broker