How do we access the Forex Market?

As was mentioned earlier, on the interbank exchange, currencies are traded in huge volumes. Unless you have at least $100,000 to invest in Forex you will be accessing the Forex market via an FCM (Futures Commissions Merchant) a.k.a. Forex Broker or dealer. FCMs or brokers act as facilitators between you and their liquidity partners (usually large financial institutions such as commercial or central banks).

NDD Brokers

There are brokers who clear trades directly through to the larger banks and other liquidity providers. These brokers are known as NDD (No Dealing Desk) or STP (Straight Through Processing) or ECN (Electronic Communications Network) brokers. They match the client order with the best offer on the interbank market. It is in their best interest that the client trades successfully because in this case he/she will stay as their client for a long time, will increase their account and will gradually be placing bigger and bigger orders which in turn will result in higher commissions for the NDD broker.

Other Brokers (MM)

The majority of brokers, however, act as market makers (MM's), meaning that they have enough liquidity (money) to be the counter-party to their clients' trades. This has the potential for a conflict of interest, because any money lost by the client is a gain for the broker, while at the same time making the client entirely dependent on the quotes that the broker presents to them (which may deviate from the real market situation at that time)! This is not to say that all MM brokers bend the rules and cheat their clients - but some do!

We will show you how to choose a good reputable broker in one of our next issues, when you know the basics and are ready to start. At this time you may simply download the MetaTrader platform and familiarize yourself with it. Even though there are other trading software out there MT4 is one of the best ones and definitely the most popular one so chances are it will be the platform you will be using.
To download click on "Trading Platform", then "Download Platform" and follow instructions. This will also create a FREE DEMO account for you with the InterbankFX brokers. You may download the platform from many other brokers as well but IBFX have simplified the settings in their version of MT4, making it easier to the beginner traders to get started. For example they use GMT time and their swap calculations are simplified, always showing the swap interest rates in US dollars.

Services and Software Provided by Brokers and Management firms

The brokers are providing various services, the first and most important of them being that they provide you with access to the Foreign Interbank exchange thus allowing you to actually participate in the FX Market.

Screenshot of the Meta Trader 4 Platform+Charts

Nowadays most brokers will provide you with software (usually free!) to open and close your trades on your own (you will need an Internet connection of course). This type of trading software is called a “Trading platform” or simply “Platform”. One of the most popular platforms is called Meta Trader 4 (MT4) and it is offered by the majority of brokers out there.

The "Trading Station" Platform (no charts)

Often times the broker will also provide some charting software (usually also free) which will display the currency graph so that you can see it change in real time and visualize what is happening on the market. This type of software is called “Charts”. Most such graphing software will also let you add certain graphical tools (indicators, e.g. a Moving Average or MACD) to the graphs. The indicators are intended to further help you visualize what is going on the market. These will be covered later in a section called “Technical Analysis”.

The "Navigator" Platform (no charts)

There are two main types of charts and trading software: browser/Java based and standalone desktop applications. Many brokers still offer only browser based trading and charting software. Browser based means that you need to go to the broker's web-site with your browser, log-int and then the currency prices and charts will be shown to you inside your browser (a browser is the program that you use to view this page, e.g. Internet Explorer or Firefox are browsers).

There used to be a time when your only connection to your broker was your telephone. You would get the currency prices streamed to you via a special electronic device provided to you by the broker (a special pager) and if you wanted to buy or sell currencies you would have to call the broker and speak with them and place the buy or sell order that way.
Nowadays most brokers will provide you with software, so that you can open and close your trades instantaneously!

In theory browser based platform software has the advantage of simplicity and versatility, allowing you to log into your account from any computer in the world and perform all the basic tasks like closing or opening trades, etc. In reality, however, most such software is horribly slow, lacks many features, and is plagued with problems ranging from security issues to browser or plugin issues, to inability to load and export historical prices, etc.

If you usually trade from your own computer then the standalone desktop applications are by far the better option. Some brokers offer a unified software (platform+charts in one application). Meta Trader, mentioned earlier, is a standalone desktop platform and it combines platform with charts!). It also has the advantage of allowing automation through the so called "Expert Advisers". These are add-ons which can perform a range of tasks on the trader's behalf, some like FX Tracer or the Forex-Autopilot automate the trading process completely (all you need to do is drop them onto the chart)!

Margin and Leverage

Another very important service provided by the brokers, and this is what makes Forex so lucrative, is that they allow you to trade on margin, which in essence means that you are trading with the broker's money, using only a fraction of your account as a security deposit.

The idea is similar to getting a mortgage from a bank - you provide the down payment, which is only a fraction of the entire cost of the house, but are given access and rights to the entire house. If the property prices rise and you sell the house you profit from the difference in price of the ENTIRE house (not just the down payment part). This is called leverage or "using other people's money" to make money and it is exactly what makes the Real Estate market and the Forex Market so attractive.

Another very attractive aspect of Forex trading is that you can automate a great deal of your daily Forex tasks or even the entire process completely, by using automated trading software like for example the Forex-Killer Signal Generator or the Forex-Autopilot Robot. It sure is nice to know what it going on in the market but automated programs become more accurate and sophisticated and many traders begin to realize the edge they are giving them. Both of these applications have won numerous awards for their performance.