An Introduction to Foreign Exchange Market Broker:
Foreign exchange market brokers are one of the major participants in the foreign exchange market.
They are specialist companies playing the role ofintermediaries between different banks. They have online links with banks throughout the world to recognize which bank has the highest bid i.e. which bank has the highest buying rate forcurrency and on the other hand which one has the lowest offer rate.
This helps in making it possible for the banks to take up the best deal. The foreign exchange market broker provides the service of financial intermediary for a commission.
Functions performed by Foreign Exchange Market Broker:
Foreign Exchange Market is an OTC(over-the-counter) market in which the broker charges a fee for bringing together a buyer and a seller. However his role is quite different from a dealer who mainly carries out the transaction.
The foreign exchange market broker however doesn’t commit any firm’s capital. So they are free from the risk related to holding a stock of currency that arises from exchange rate fluctuations.
A foreign exchange market broker also undertakes a good deal of technical analysis. They use charts toextrapolate future trends from past movements on the assumption that movements in exchange rates reflects market beliefs and past patterns can rationally predict forthcoming ups and downs. The extent of brokering in an OTCmarket depends on many factors such as the currency involved, type and size of transaction etc.
The advent of electronic broking systems (or automated order matching systems) since 1992 has captured a good deal of market share in spot transactions and buyers and sellers have substituted it for conventional telephone-based (voice-based) foreign exchange market brokers. Using the electronic mode of broking, traders can keep a broader watch on the bid and offer rates of potential counter parties. Also these systems are regarded as more reliable.
The profession of a foreign exchange market broker has become highly competitive with the splurge of foreign exchange market transactions and speculation. Brokers compete not only among themselves but also against banks and dealer institutions.