Brokers for Beginners
Okay, I promise this is the ABSOLUTE last section you’re going to read before you start looking at graphs and charts, which is what I know a lot of y’all reading this are looking forward to! This section is about BROKERS. You can’t trade without having a broker to execute your trades for you, right? So pay attention to the next few sections, and then we’re off to learn technical analysis 🤓
Before we learn about brokers, you must understand how we even got here! Here’s a quick summary on the History of Forex and Forex Brokers.
So in the 1800’s, people used physical gold and silver as a method of payment. It wasn’t always ideal because the supply and demand of gold and silver would alter the purchasing power. Meaning if miners discovered more gold, the value of gold would drop due to more gold being brought into the world. Eventually, paper currency was created to represent gold. It’s easier to carry a piece of paper versus actual GOLD!
In 1913, The Federal Reserve (US Central Bank) was created. Gold was currently pegged to the US Dollar, meaning for every dollar that was created, it represented the amount of gold they had available.
Due to the World Wars occurring, in order to have more money for war, European countries broke the gold standard by printing more and more money. The amount of US Dollars being printed was not being represented by the amount of gold that was available. Instead, it was creating debt.
This is when the Bretton Woods System was created. The Bretton Woods System was created to establish a new order by stabilizing the economies worldwide. In doing so, a pegged exchange rate was created, meaning prices wouldn’t fluctuate. The exchange rate they had today with the US Dollar and the Great Britain Pound would be the same rate they had next week.
NOTE: The reason most countries pegged their currency to the US Dollar is because the United States had the most gold reserves at that time.
Eventually, that idea fell out due to the government spending and lending so much money (DEBT), there wasn’t enough gold to back the amount of US Dollars going around. So the current president in 1971, Richard Nixon, completely abolished the Bretton Woods System and allowed supply and demand to determine the value of these exchange rates by having the US Dollar be a free-floating currency against other currencies.
Eventually, trading became popular, but only large financial institutions were trading. Regular people like you and me didn’t have access to trade until the internet became popular! Once the internet became popular, trading platforms were created for retail traders such as us.
Now, individual traders can trade from anywhere in the world at any time they want! Trading isn’t restricted just to large financial institutions. It is easily accessible to retail traders such as you and me.
NOTE: The majority of retail traders still LOSE even though they have access to markets. Most retail traders don’t have access to the interbank market (we’ll discuss that in the next section), and a lot of traders lose due to believing they can get rich next week. They don’t prepare and train their brains properly, nor do they have the correct approach when trading the market. A lot of retail traders are those struggling to pay their next bill and if that’s the case, it’s unfortunate to say, but trading Forex is not for you. You should NOT be trading with money you’re not comfortable with losing and money that can/will change your life if you were to lose it.
ANOTHER NOTE: NOT everyone loses in Forex. While most do, there are some highly skilled traders, whether they’re individual people or firms, that are profitable. The issue is, the majority of traders jump in thinking they can be a millionaire in 1 month and quit when they’re not. You don’t even have the consistency to text your girlfriend back after a week, bro. Be 100 with yourself. Learning how to trade Forex not only requires discipline and patience, but it also requires consistency. Even if you learn how to trade, that does NOT mean you will still be profitable. The crazy part about this market is NOTHING is guaranteed! Similar with a job in the workplace – You can work at a company for 20 years and still never get a major promotion. It’s a difficult thing to think about, but one you MUST understand before embarking on any type of work journey, especially one in the financial markets.
That wasn’t said to discourage you! I do believe it’s beneficial for everyone to learn about finances, whether that be: Stocks, Forex, Real Estate, Taxes, Credit, Mortgages, etc, and just everything related to finance! My goal for this academy is for everyone to be equipped with knowledge, so if you decide to embark on that specific financial journey (in this case Forex), you at least have the knowledge to attempt being profitable. It’s a long and hard road that requires tremendous amount of practice, but it’s the same with the NBA! Only 450 players are in the NBA, yet there are hundreds of thousands of kids playing middle school, high school, and college basketball right now. That means LESS than 1% of basketball players in the world make the NBA! What a tough stat! The stat is WAY higher when it comes to profitable traders in Forex. According to ______, around 7-10% of all Forex traders are profitable. That means 90% lose, but there’s a chance you could be in the 10% that does not lose. So keep that in mind, stay upbeat, and keep pushing on to the next section!
NOTE: Just because you take this free course and the paid course, it does NOT guarantee that you will be in the percentage of profitable traders. Your trades and your psychology at the end of the day is solely your responsibility.
What is a Broker?
Just like you have a bank that stores all of your money, your broker kinda does that… except he or she executes the trades you want for you! A broker is the middleman between YOU and the market. So if you want to buy GBP/USD, you would click “BUY at 1.30500” on your Broker’s platform, and within seconds, the trade is executed, and you’re in the trade!
Retail traders weren’t always able to access the Forex Market. In the 90’s, your friend up the street couldn’t just open an account and start trading.
Large financial institutions, central banks, and corporations were the only ones who were able to really trade the Forex Market.
Back then, there were many terrible Forex brokers who scammed people out of a lot of money. Ponzi schemes were active, and a lot of Forex brokers weren’t regulated. People didn’t know what Forex really was! They just heard there was a way to make money…a “new” type of investment which intrigued a lot of people who invested and lost their money because nothing was holding those specific scamming brokerage firms accountable.
Eventually, regulations were finally put in place that held brokers accountable for their actions, meaning not only do they now have to be licensed, but they have to follow strict regulations if they want to continue to operate as a broker.
You mix that in with the internet and the ability to access things online, and BOOM! Traders like you and I are able to open an account with a brokerage, deposit some money, and start trading!
But what you should know is that there are two different types of brokers! Our next section gives you more insight on the type of brokers.