Can I trade forex without a broker? – Is that really possible?

As a beginner in forex trading, you may wonder if you could skip some costs by trading without a broker. The answer to this question depends on what type of forex trading you’d like to do. We will explain.

Can you trade forex without a broker?

No and Yes. Forex trading literally means the buying and selling of currency pairs.  When you trade forex pairs, you’re swapping a country’s national currency for another. 

There are two forms of forex trading:

1. Trading online in the global market

The first and common form of forex trading involves speculating on the currency pairs in the global market.

When you buy a forex pair in this market, you do not own the currency per se. You are only betting that the base currency will appreciate. Therefore, the second currency will decrease in value.

When you sell, you expect the second currency’s value to strengthen against the base currency.

To gain access to this global market, you need a broker. They serve as your link to the market where there are other traders, and so, they are providing liquidity to your trade.

This form of forex trading can not be done without a broker.

And it is the popular form that we’re all familiar with.

2. Trade as a Bureau de change or local exchange agent.

The second aspect involves literally buying a foreign currency in a commercial bank to sell at a higher exchange rate. A popular form of this type of trading is your local Bureau de Change. 

In addition to buying from the bank, you can also exchange currencies from individuals, such as tourists, travelers, or any other participant. 

In some countries, this form of trading is regulated. But in other places, they’re known as ‘black market forex traders. 

Trading forex this way does not connect you to the global financial market. Therefore, the currency options are usually limited to the local currency and a few major ones.

The main objective is to cater to foreigners visiting the country, who will need the local currency for use during their stay. Travelers or people who need to make remittances in a foreign currency also use these offline forex services. 

You don’t need a broker to trade this form. All you need is your local commercial banks. Local laws are guiding this form of forex trading, depending on the region. 

Differences between trading forex offline and in the global market.

Below, we list the specific differences between the two forms of forex trading:

1. Middleman trading 

To trade in the global market, you need a broker. But as a bureau de change or local exchange agent, you will exchange currencies without any middleman.

2. Liquidity provisions.

As a forex trader in the global market, your broker serves as your liquidity provider, giving you a counterparty to your trade at all times.  A bureau de change agent is responsible for getting a buyer or seller for his currency.

3. Start-up capital and leverage.

Setting up a bureau de change or trading forex offline requires substantial capital. Unlike online trading with a broker, there is no access to leverage. The bank from which you buy the currency will expect full payment. Trading with a broker is different. You would have easy access to loans in form of leverage or margin trading.

4. Spreads or profit.

A broker makes money from the spreads in each currency pair (and in some cases, commission). The spreads depend on the value of each currency and the market conditions.

If you trade forex offline, you buy currencies at the lowest rate offered by your Central bank. You then sell it at a black market price, much higher than the price in the interbank market.  Your profit would be the difference between your buy and sell price. 

There are regulatory bodies in some countries that decide on this price. Though, it is also affected by the price highs and lows in the global market. 

How can I trade without a broker:

As we’ve explained, the only way you can trade without a broker is to do it offline. You would have to become a local exchange or Bureau de change agent.

The procedure for this would depend on your region and its laws. Basically, you would have to set aside a considerable amount of capital. Some commercial banks have a specified minimum that they accept for this exchange.

You may also need to register a company and get a license to operate the business.

This is too much hassle for most people and presents little opportunity to diversify. However, the profit margin is much bigger sometimes.

Another way to trade without a broker is to become a broker yourself. Using your license and company name, you could trade as an individual, that is, you’ll be your broker. 

Brokers are busy dealing with traders. It is doubtful that they engage in it. Also, there may be regulations or laws against this practice. You would have to be sure it is legal to do this in your region.

We have explained how to trade without a broker. Now, we’ll outline the roles of brokers in the market and why you need them in your forex business.

Roles of a broker in the forex market:

1. The broker is already established in the market through its licenses and certifications. They exist to connect retail traders to the global financial market. You and I can only access this market through the broker. 

2. As we’ve explained, the broker provides liquidity for your trade. When you place a BUY order, this order can only be filled if there’s a SELL order on the same pair. The broker makes your trade possible by providing liquidity, linking you with a counterparty. 

3.  Since retail traders have no direct access to the market, they can only place orders. Let’s say you enter a BUY trade for a particular forex pair. What you’ve done is place an order. It is the broker that executes all the trade in the forex market. 

So if you wish to trade the usual way, online and in the international market, you need a broker. 

FAQ – The most asked questions about trade Forex without a broker : 

Last Updated on January 27, 2023 by Arkady Müller