How Do Forex Brokers Work?

The foreign exchange market is an international decentralized market for the trading and exchange of currencies. This market estimates the rates of foreign exchange of every currency across the globe. It also includes every aspect of exchanging, selling, and buying currencies at determined or current prices.

Who Is A Forex Broker?

A forex broker is a firm that offers traders with a platform for selling and buying currencies. Every transaction in the forex market takes place among different currencies, and so the forex trader either sells or buys the specific pair they seek to trade. A forex broker is also referred to as currency trading brokers and retail forex brokers. Most of the forex broker firms deal with a minor portion of the entire volume in the forex market. The retail currency traders employ the forex brokers to get access to the 24-hour foreign currency market for the purpose of speculation. The more significant firms like the investment banks also provide forex brokerage services to institutional clients.

What Is The Role Of The Forex Broker?

Enlisted below are the different roles and functions of the forex broker.

1. Establish a link between the foreign exchange market and the trader

The forex brokers make it possible for individuals traders to get access to the foreign exchange market. The retail traders hold insignificant proportions of the large foreign exchange. It is therefore infeasible for individual retail traders to trade with the significant players in the forex market. And so, the forex broker plays the role of a bridge between the retail foreign exchange trader and the forex market by providing a platform for trading.

2. Conduct trading on behalf of the individual retail foreign exchange trader

The forex brokers often offer the service of trading in the forex market on behalf of traders. The broker assists the individual trader in establishing a link with the major traders in the forex market. As such, whenever the major trader conducts trading in the forex market, he invests a particular percentage of the individual trader’s money as well. The retail trader then receives a portion of the profit from the profits of the trade. This mode of trading is highly profitable as the bigger players of the forex market are highly experienced in trading and investment, and can make the cuts with ease.

3. Make efforts to educate the trader

The forex broker offers education to the individual traders. Retail traders can access the platform of online forex brokers to learn about trading strategies and tricks for making profits. The forex broker also helps the retail trader to practice demo trading through a demo account before taking part in live trading.

How Much Is The Forex Broker Fee?

The forex broker may charge around $1 for every $100,000 of currency pair exchange. If a retail trader purchases $100,000 EUR.USD, then the forex broker receives a commission of $10.

What Are The Risks Of Foreign Exchange Trading?

Active trading in the forex market involves a variety of risks. The trading can either generate skyrocketing profits or incur terrible losses. An in-depth understanding of the risks and close supervision of the market factors can help to curb the losses to a great extent. Look out for the following risks while trading in the forex market.

1. Margin risk

Leverage risk or margin risk comes with margin trading. Margin trading permits the trader to use the leverage. If the leveraging ratio is too high, then the losses may spiral beyond control. Conduct leveraged trading by enhancing the size of your position in proportion to the borrowed capital.

2. Interest rate risk

The fluctuations in the interest rate expose the trader to interest rate risks. Careful monitoring of the changes in the rates of interest can indicate where the big institutions are making investments for higher returns on their assets.

3. Volatility risk

Volatility risk is the risk that the traders get exposed to because of the high degree of fluctuation within the forex market that results in sudden losses in trade. However, the volatility of the forex market has positive aspects as well, as there can be no profit-making without volatility. The volatility creates pressure in the market that drives the supply and demand dynamic and enables traders to make profits.

4. Broker risk

It is essential to make sure that the broker is honest and reliable before taking part in forex trading.


A Guide to Ethereum’s Hard Fork

Fork or Harfork is a fundamental term related to blockchain technology, used to denote an important change in the network’s protocol which can validate blocks that were invalid earlier or vice versa. A hard fork needs the upgradation of all existing users and nodes, to the protocol software’s latest version. Such a radical change can occur in any crypto or blockchain technology-based platform like Bitcoin, Ethereum, etc.. Upgradation is required as the nodes of the upgraded version do not accept those of the previous one which results in a permanent divergence. When a new rule is added to the existing code, a fork or change is created in the blockchain, which leads to divergence. Resultantly, one route follows the latest version and the other route sticks to the older version, although after some time, the old chain got outdated, gets upgraded to the latest version. This is how a hard fork primarily functions.

Different Types of Fork

In an Open Source Software, where projects are developed in the open, with complete transparency, “a fork occurs when the source code of a project is copied to be developed independently of the original project.” Forks again can be of two types- soft and hard forks, where we already know about hard forks. Soft forks are protocol upgrades that are compatible with the older version backward, but not vice versa. Thus, the network would be incapable of breaking up into chains or issuing new cryptocurrencies. Another fork is a ‘planned upgrade where the upgrade has been planned well in advance, on the blockchain network.’ Like Ethereum (ETH) has already developed its roadmap for the next five years. For Instance, where the blockchain code is forked and changed for introduction and generation of the new currency, a majority of blockchain ecosystems develop through this kind of fork, like Litecoin, Namecoin, etc.

Also, a change might occur when there is a rift between the developer and miner community, like the schism and subsequent split in the Ethereum network after the DAO project was hacked at the cost of millions of ETH. The discord in the community w.r.t. the response to the hack, resulted in a hard fork where some continued with the mining of the original chain, leading to the network’s split into two groups, Ethereum Chain and Ethereum Classic. This is often referred to as ‘go-to- contentious fork.’

An Overview of Ethereum’s Hard Fork

In the case of Ethereum, the developers have planned for significant changes that the network would undergo over a period of time. This change, tantamounting to a slow process of development of the network, has been seen as a necessary measure for its long term evolution. A gradual transition would take place from ‘proof-of-work’ to ‘proof-of-stake,’ although a hasty upgrade is uncalled. Once the transition to the proof-of-stake mechanism is complete, we would get what would be known as ETH2.0.

These forks, therefore, function as Ethereum Improvement Proposals to make the network more advanced and improved. A number of these proposals would be included in the fork and this is based on the ‘Request for Comments’ proposal system, which provided the basic proposals of the way the internet has turned out to be today. “Lately, there has been announced a new model called EIP-centric forking by Martin Holst Swende, which is the process of how AllCoreDevs are making decisions about EIPs and forks.”

Ethereum’s Development Cycle

There are four primary stages in Ethereum’s development cycle- Frontier, Homestead, Metropolis, and ETH2.0 Beacon Chain.

  • Frontier, as the name suggests, launched the ‘Ethereum Mainnet, ’ which signaled the mining of Ether and prototyping of decentralized applications.
  • Homestead was the first production release by Ethereum and hence introduced changes that magnify development capability and user accessibility.
  • The third stage is Metropolis, which brought specific attributes with it like scalability, increased security, enhanced privacy, and efficiency along with the flexibility to the Ethereum network. This phase, being a crucial phase of maturation, has been divided into two parts-
  • Byzantium– where a privacy-protecting technology zK-SNARKS, which is used by different projects like zcash, was introduced to the network along with many upgrades to smart contract operations. It was also characterized by a delay of the ‘difficulty bomb,’ and the block reward was reduced from 5 to 3 ETH.
  • Constantinople consisted of several upgrades for operation and network maintenance, of which the first phase was St.Petersburg. This phase made operations on certain chains cheaper, and the block reward was brought down from 3 to 2 ETH. Followed by St.Petersburg would be Istanbul, which would be further divided into two stages- Muir Glacier and Berlin.
  • Muir Glacier does not follow the standard nomenclature scheme as it is an emergency or unplanned fork. “It comes between Istanbul and Berlin named after the popular glacier in Alaska because of the Ice Age difficulty bomb delay. This emergency fork addresses the impending Ice Age on Ethereum Mainnet.”
  • Berlin is the second stage of Istanbul and has generated a lot of debate owing to its suggested change of the Ethereum network’s mining algorithm.

ETH2.0 Beacon Chain is the final phase of Ethereum’s expected roadmap, which would complete the transition from Proof-of-Work to Proof-of-Stage consensus along with the introduction of the Beacon Chain. Cross-shard communication, a shift from EVM (Ethereum Virtual Machine) to Ethereum Flavoured Web Assembly (e-WASM), would make it the most crucial stage of transformation for the Ethereum network. Two live chains would function with the older one being eventually subsumed by ETH2.0 and pushed into one of the shards. However, a lot of work remains to be done before the shift into the final phase is complete and the Ethereum community is still in two minds regarding the transition. Once the transition is complete, Ethereum would become one of the most advanced public blockchain networks worldwide, which would give further impetus to the growing ‘techno-social phenomenon.’