KEY FEATURES ABOUT TYPES OF FOREX BROKERS
There are some certain types of forex brokers and it is not wise to jump right into forex broker without making any analysis. Look for detailed features of each type of forex brokers to realize their strength and weakness or their positive and negative toward your trading style or plan before you start to profit from forex .
First, two main types of forex brokers can be mentioned here are: Dealing Desks (DD) or it can be Market Makers and No Dealing Desks (NDD), which compose of Straight Through Processing (STP) and Electronic Communication Network + Straight Through Processing (ECN+STP).
Dealing Desk Broker
Dealing Desk Brokers or also Market Maker run their business by providing their clients with liquidity and make a market for traders. Among types of forex brokers, this type is thought that it could be a opposite interest rate but there is not because they make no decision on their clients’ trading directly or indirectly and there is no use making benefit from that. In addition, they do arrange buy and sell quote for the clients. Dealing Desk Brokers deal with their clients’ orders and it is good even if they fix the spread for the traders.
Among brokers, there is always a competition for their reputation so even if they will not let you know the rate of interbank, it is very safe that the rate is not too different.
For example, you put a buy order of EUR/USD for 100,000 units, then brokers will have to find a sell position that fits your order, if not, your order is sent to a liquidity provider. With this way, the risk level is lower and brokers will not be at the place that is opposite to traders’ place.
No Dealing Desk Broker
Among types of forex brokers, this one by its name can tell you its features too. These brokers will not put themselves at the opposite place to their clients’ but they work as a bridge to connect traders and a third party.
The difference is that No Dealing Desk Brokers will cost an amount of commission and a little higher rate of spread.
Two main kinds of NDD are STP or STP+ECN
It is true that ECN brokers will let their client to make deal with other parties of their system which can be banks, retailers, hedge funding. How it works is that these participants will offer their best sell and buy price to debate with other participants and try to win.
With ECN brokers, the “Depth of Market” is shown for the traders so they can know the buy or sell orders that are placed by other participants. Also, the features of ECN brokers, they earn money by asking for the commission because it is not easy to slap on fixed spread. Is low spread good for trading?
In conclusion, there are two main types of forex brokers and to know how they work is the clever way to know which broker to invest money and which types of forex brokers fit your trading.