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The foreign exchange market, or forex, is the biggest financial market around the world, with more than $5 trillion being traded daily. A trader has to execute trades through a forex broker if he wants to get into the forex market. These professionals make money on commissions and/or other charges, regardless of the gains or losses their client may incur.

Before venturing in forex, get to know know the forex brokers.

A forex broker takes and executes orders to purchase or sell a currency. They are facilitating orders in the over-the-counter market, which is not governed by the same regulators unlike other exchanges. Brokers may not adhere to various rules encompassing securities transactions. You need to be cautious if the counterparty won’t default since this market has no centralized clearing mechanism. You can do so by investing the broker’s counterparty and his capitalization.

Like what we have mentioned before, brokers earn money by charging a commission and/or fee per trade on a spread. Let us have a little refresher: The bid price is money a trader receives for selling the currency. Conversely, the ask price is the payment a trader needs to give for buying a currency. Its difference is known as the spread. Certain brokers offer commission-free trades.

Spreads are either fixed or variable. If variable, the spread will vary depending on the market volatility. This can go for or against you in the event of a key market event, such as election or interest rate hike (or cut). If the market becomes volatile, you may pay much more than you estimated at the end of the day. Some brokers charge a different spread for purchasing and selling the currency, so be mindful of the pricing.

Since the forex market is extremely liquid, margins are low and leverage is high. Most brokers require depositing a small amount. But a word of caution: Trading on a margin presents numerous risks in the forex market for both traders and brokers. And forget not the very important rule in forex trading: Never risk more than 2% of capital per trade.

The forex market market is very lucrative yet speculative. It is advisable to proceed with a caution and be wary of deceiving get-rich schemes promising hefty returns. And before you even consider trading in this market, shop around to score the best deal as every broker has their own quoting method.