By Adinah Brown

The forex industry as we know it today has its roots as a reaction to the traditional high street bank. For years, trading in currencies was limited to professional currency traders, often employed by the banking fraternity. The everyday man was on the outside, desperately pressing his nose to the window like a child at a toy store.

The subsequent access of trading to everyone brought down the walls on an elite enterprise, democratizing and providing an opportunity to the masses to trade. An eager public rewarded the new brokers and trading with these new brokerages became instantly popular. It changed the face of an institution. And by doing so, changed the market.

The new trader is not one employed by a bank. This person could be a baker, lawyer, bricklayer, even your lazy cousin. The passing of time has softened the views of the traders against the high street banks, and most have a brokerage offering, easily available online. Many have done so for several years, leading the way in share trading and market analysis.

Today, the main difference between a “high street bank” broker and those which are not, is probably just the understanding amongst traders that the high street bank broker also functions as a bank. This certainly provides more comfort for the traders in terms of protection of funds, despite the demise of several large investment banks during the global financial crisis.

The reason that traders feel more comfortable with a bank, despite this recent display of fallibility from the banks, is based on the contrast – the high street bank is a known bricks and mortar entity, whilst the other brokerage options are somewhat unquantifiable. A trader does not need to ask of the banks “Who is the CEO?”, “Where do they operate?”, “How do they fund their activities?”, “Who is providing protection for our funds?” or the like. Because the primary business model is banking activities, much of the concerns about protection of funds are not relevant in the face of both government backed deposit guarantees and the strong underlying regulatory standards.

To a trader, trust is very important. Whilst the high street banks represent stability in terms of funds protection, the non-bank brokers work very hard to show that they are trustworthy. Obviously, regulations are in place to provide assurances for funds protection, but often brokers refer to the account holding structure and provide proof of the setup to traders to assuage their concerns about fund protection.

But many brokers, for various reasons, do not provide transparency. And because of the inability to associate them with a strong bricks and mortar type of industry, it breeds mistrust. Conversely, this allows the non-bank brokers to provide a strong business model, since they are not necessarily held down by the other activities and a larger infrastructure. Non-bank brokers can have a tight, dynamic, low cost structure, which will allow them to pass on a lower cost model.

At the end of the day, trust is a personal issue. Some traders trust the high street banks as safer, and others maintain a negative view of the banking sector and recognize its instability as well. Some feel that they are sufficiently protected by existing regulations and the individual assurances of the brokerages and the other traders who recommend them.

So whatever end of the spectrum a trader inhabits, the variety of offerings means that there is an option for everyone…. Trust me, I know.

About the Author:

Adinah Brown is a professional writer who has worked in a wide range of industry settings, including corporate industry, government and non-government organizations. Within many of these positions, Adinah has provided skilled marketing and advertising services and is currently the Content Manager at Leverate.