Forex brokers connect traders to the interbank currency market, handle orders, pass quotes from liquidity providers, keep records, calculate financing, and hold client money under rules set by their regulator. Pick the right firm and trading turns into a clean routine of placing orders, managing risk, and getting paid out without drama. Pick poorly and you meet slippage you didn’t expect, financing charges you didn’t notice, and support that goes quiet at the worst time. This guide explains how forex brokers work, how they make money, why execution models matter, what to check in the legal fine print, and which features actually help if you hold positions anywhere from minutes to weeks.
What a forex broker actually does
A forex broker receives your order, checks that you have the buying power to place it, and sends it to a price stream where it can fill. Around that core job sit custody of client funds, margin and liquidation logic, swap and rollover calculations, reporting, and compliance work like KYC, AML and trade surveillance. Quotes come from banks and non-bank liquidity providers in a live stream where the top of book moves every few milliseconds. The broker either offsets your trade externally or keeps the exposure in house and hedges at a book level. Your platform shows prices, lets you place market, limit, stop or stop-limit orders, and displays positions with unrealized profit or loss. Overnight, the broker applies financing based on the short rate of the currency you borrow and the rate of the currency you lend, plus or minus a spread. At week’s end a longer financing day lands to account for weekend settlement quirks. Corporate actions barely touch spot FX, but holidays and bank settlement calendars do, and the broker’s back office keeps those calendars straight so your statements and payouts line up.
Regulation, client money, and why jurisdiction matters
Regulation sets the guardrails. In the United States, retail forex dealers answer to national rules with tight product limits and high capital requirements. In the UK and the European Union, firms answer to conduct rules and hard caps on gearing for retail clients along with negative balance protection and strict marketing standards. Australia, Japan, Singapore and other major hubs run their own versions of those rules. The headline differences you feel as a client are simple: how much borrowed buying power you can use, what protections apply if your account goes negative during a fast move, how client money must be held, and how complaints get resolved. A brand may run several legal entities in different countries with different rules, so always read which entity you are actually opening with. Segregation of client funds from the firm’s own cash should be stated plainly. If the agreement waffles on segregation, that is a stop sign. Compensation schemes are a last-ditch safety net in some regions, but they are not a shield against trading losses, and the limits can be lower than you think, so treat them as a backup rather than a plan.
Dealing desk, STP, and ECN explained without buzzwords
Execution models decide who sits on the other side of your trade and how the price you see becomes the price you get. A dealing desk or “market maker” quotes you a price and may take the other side, internalizing some or all flow. This can mean stable quotes in quiet periods and tight control over fills, but it also creates a conflict of interest that has to be managed with supervision and clear policies. STP means straight through processing where the broker routes your trade to outside liquidity and earns a markup on the spread, a commission, or both. ECN means a network where multiple providers post bids and offers and your order matches against that book at the best available level, usually with a per-lot commission and raw spreads that can hit zero in liquid hours. None of these models is pure good or pure bad. What matters is whether the broker discloses its model, publishes typical spreads and execution stats, and treats your stop and limit orders the same way every time. If you see wide, sticky spreads during normal hours, frequent requotes, or fills that ignore visible liquidity, that platform is not working for you.
Spreads, commissions, and the real bill per trade
Your total cost is spread plus any explicit commission plus financing while you hold. Tight spreads with a fair commission often beat “no commission” accounts with padded spreads. Look at average, not just minimum, spreads during the hours you actually trade. Major pairs during the London–New York overlap should feel sharp. Exotic pairs move on thinner liquidity and wider spreads by design, so size down and expect more slippage at news time. Some brokers offer price improvement on passive limit orders when the market flickers through your level; others do not. Either way, slippage should look symmetric over time: a mix of small wins and small losses, not a one-way drain.
You can compare the spreads and commisions of different brokers by visiting ForexBrokersOnline.
Borrowed buying power, margin calls, and stop-outs
Gearing multiplies both good and bad. Each position consumes a chunk of your free margin based on pair, size and the rules in your region. When equity drops toward the maintenance threshold, the platform starts closing positions in a fixed order, usually worst loser first, until the account is back above the rule. A clean broker shows live margin used, free margin, and stop-out level in the platform, not buried in a PDF. Volatile pairs, weekend gaps and news spikes can blast through stops and hit your account faster than you can click. Negative balance protection in some regions caps the damage at zero. In others you still owe the shortfall. Know which case you live in before you open size you cannot easily replace.
Swaps, rollovers, and why financing is not a footnote
Hold spot FX past the market close and financing lands. It reflects the interest rate difference between the two currencies plus the broker’s adjustment. Positive carry adds to your P and L each day. Negative carry nibbles at it. Wednesday nights often book triple swaps to account for settlement timing. Around central bank decision days the math can flip. If your method holds for days or weeks, your edge may live or die by swaps rather than entries, so read the current schedule on your pairs and check it weekly. On metals, indices and energy CFDs, the same idea shows up as overnight financing at a stated benchmark plus or minus a spread, and small differences in that spread compound into large differences in a month.
Order types, time in force, and gap behavior
A market order asks for whatever is available now and fills at the next tradeable quote. A limit order sets your price and waits. A stop becomes a market order when its level is touched, while a stop-limit triggers a limit order that may not fill if the price jumps. Time in force settings decide how long the order lives. Good till canceled should survive restarts and maintenance windows. Good till date should expire cleanly. Stops during thin pre-market or post-market sessions can trigger on stray prints if your broker counts those ticks, so learn the exact rule in your platform. Gaps at the Asian open on Monday can blow past levels without a trade in between. That is not a broker trick; it is how prices work when the book reopens. Your protection is sizing, not magical order types that promise to erase reality.
Platforms, data, and the tools that actually help
Most retail flow runs through MetaTrader 4 or 5, cTrader, or a web platform with TradingView charts. They all place orders and display positions. What separates them in day-to-day use is stability under load, clarity of order tickets, depth of book display for CFDs where available, alert handling, and the ability to script or automate without breaking. If you run strategies on a VPS, you care about server location relative to the broker’s price engine and session stability during maintenance. If you use indicators, keep the set small. A clean chart with price, volume proxies like tick count, a couple of moving averages, and basic session markers will carry you further than a dashboard you don’t read. News panes that flag central bank days and top-tier data releases help you avoid placing orders into a blender.
Deposits, withdrawals, and cash management you can trust
You want deposit paths that do not cost a fortune, withdrawal paths that land in a predictable number of days, and a back office that does not stall payouts behind vague requests. Card deposits are fast but often force refunds back to the same card before any surplus goes by wire. Wires are slower but tidy. Third-party payment processors add speed in some regions but can add limits and surprise fees. Keep your account base currency matched to the bank account you use most so you are not paying small conversion spreads on every move in or out. Test a small withdrawal before you scale. A platform that makes payouts boring is worth more than a platform that hands you a glossy welcome bonus.
Short term tactics, long term habits
Scalpers need low latency, minimal markups, and depth that does not vanish at the touch. Swing traders need consistent spreads at the close and open, fair swaps, and stops that behave the same way each week. Position traders living off carry need reliable financing that does not shift without notice. Whatever your tempo, the same habits win. Keep position size tied to account equity, not to how confident you feel about a setup. Use alerts so you do not sit and stare at noise. Treat news hours with respect. Keep a journal with screenshot, entry, stop, size, and reason. If the broker’s fills and fees align with what you wrote down, you found a good fit. If not, do not argue with the platform. Change it.
Conflict management and transparency
Any broker that internalizes flow has a built-in conflict with profitable clients, and any broker that routes out has a conflict with liquidity providers that pay for volume. The way to live with those facts is sunlight. Look for firms that publish average spreads by pair and hour, slippage distributions, rejection rates, and a clear order of liquidation during stop-outs. Read the execution policy. If the document is a wall of vague words that never commit to anything, take the hint. If support can explain a bad fill with timestamps and venue detail, you are in the right place.
Multi-asset menus and the CFD question
Most forex brokers now offer CFDs on indices, metals, energy, single stocks, and sometimes crypto. These are synthetics priced off the underlying with their own financing, dividend adjustments, and corporate action rules. They can be useful for hedging a currency view with an index short or for trading gold alongside major pairs. They also multiply the ways to pay spread and financing if you wander without a plan. Before you click, read how dividends are handled on long or short index positions, how hard commodity roll dates are priced, and whether short stock CFDs charge borrow on top of financing.
Support, outages, and the 2 am problem
Currencies move when you are asleep. That is the job. A serious broker runs a status page, posts maintenance windows, and answers the phone when your platform throws an error at an awkward hour. Keep a record of your account number, a phone dealing desk number, and the questions they will ask to verify you before they place a trade. It feels old-school until a data center blip hits during a central bank press conference. Test support once with a real question about order behavior rather than a basic password reset. The tone of that one call tells you a lot about how the firm behaves when the tape is fast.
How to pick a broker without guesswork
Write down how you actually trade, not how you want to trade next year. If you hold through the close most nights, financing and weekend behavior sit at the top of the list. If you place five orders a day during the London session, you care about spread stability and rejection rates then, not during New York lunch. Open two demo accounts, run the same plan for a week, then fund one live with small size and compare fills, swaps, and the feel of the platform under stress. Withdraw a small amount. Read the statement line by line. If everything matches what you expected, scale slowly. If not, cut the experiment and try a different shop. Boring, consistent and transparent beats flashy every time.
Common mistakes to skip the first time
Opening the account with the wrong legal entity because the website auto-selected your country. Trading exotics in big size because the chart looks tidy without noticing the spread is ten times wider than a major. Ignoring swaps until month end and then wondering where your edge went. Running tight stops that sit inside the normal wiggle and blaming the broker for filling them. Funding only by card and learning about refund rules when you try to withdraw. Trading through top tier data prints with market orders and calling the result “slippage” rather than “predictable chaos.” These are fixable. Most vanish once you read the fee page, note the calendar, and size with a cool head.
Final word
A forex broker is plumbing, pricing, and paperwork. You want a shop that holds client money properly, shows sharp quotes when liquidity is good, behaves predictably when it is not, applies financing fairly, and pays out on time. The rest is preference. If a feature does not help you enter cleaner, hold safer, or exit smarter, skip it. Pick fit over flash, process over impulse, and clear records over marketing lines. Do that and the broker fades into the background, which is exactly where it belongs while you get on with the work.