Trading with Brokers Foreign exchange brokers, unlike equity brokers, do not take positions for themselves; they only service banks. Their roles are:• bringing together buyers and sellers in the market;• optimizing the price they show to their customers;• quickly, accurately, and faithfully executing the traders' orders.•The majority of the foreign exchange brokers execute business viaphone. The phone lines between brokers and banks are dedicated, ordirect, and are usually in-stalled free of charge by the broker. A foreign exchange brokerage firm has direct lines to banks around theworld. Most foreign exchange is executed through an open boxsystem—a microphone in front of the broker that continuouslytransmits everything he or she says on the direct phone lines to thespeaker boxes in the banks. This way, all banks can hear all the dealsbeing executed. Because of the open box system used by brokers, atrader is able to hear all prices quoted; whether the bid was hit orthe offer taken; and the following price. What the trader will not beable to hear is the amounts of particular bids and offers and thenames of the banks showing the prices. Prices are anonymous theanonymity of the banks that are trading in the market ensuresthe market's efficiency, as all banks have a fair chance to trade.Brokers charge a commission that is paid equally by the buyer andthe seller. The fees are negotiated on an individual basis by the bankand the brokerage firm.Brokers show their customers the prices made by other customerseither two-way (bid and offer) prices or one way (bid or offer) pricesfrom his or her customers. Traders show different prices becausethey "read" the market differently; they have different expectationsand different interests. A broker who has more than one price on oneor both sides will automatically optimize the price. In other words,17the broker will always show the highest bid and the lowest offer.Therefore, the market has access to the narrowest spread possible.Fundamental and technical analyses are used for forecasting thefuture direction of the currency. A trader might test the market byhitting a bid for a small amount to see if there is any reaction.Brokers cannot be forced into taking a principal's role if the nameswitch takes longer than anticipated.Another advantage of the brokers' market is that brokers mightprovide a broader selection of banks to their customers. SomeEuropean and Asian banks have overnight desks so their orders areusually placed with brokers who can deal with the American banks,adding to the liquidity of the market.
