This article concludes information on available types of forex brokers and guide traders the way to choose what types suitable with them.
You need to know what types are available on the market. This is similar to going on a date to a random restaurant without knowing its menu which may result in a disaster. The logical order should be checking out the best menu for your night then take your girl there and win her heart. Available types of forex brokers are:
Dealing Desks (DD) as known as Market Makers
Dealing Desk brokers’ incomes comes from their distribution of liquidity to customers. It is called a market maker because it provides a real market for clients to trade with Dealing desk itself. This may sound contradictory to you but let me explain why it is not. Dealing Desk both plays sell and buy role in the market which is exactly the same as other true traders role. Clients may find pleased with this for trading opportunities they were offered.
This type almost contains no risk in immovable spreads because it has power over prices whenever the orders are made. Continue to read then you will know the reasons. Traders of this type do not know the interbank market rates but you don’t need to be confused by this information. These brokers abilities in competing each other is quite equal so the Dealing Desks brokers’ rates are equivalent to interbank rates.
For example, you want to through Dealing Desk broker to buy USD/EUR for 100.000 units. This broker will find in their own clients selling orders a case suitable for your demand or let a liquidity provider, a considerable organism or personnel who ready to offer trading opportunity, take your case.
Dealing Desk brokers will take advantages of this action thank to minor risk level and large spread they earned even without directly trading.
No Dealing Desks (NDD)
No Dealing Desk Brokers’ explanation
No Dealing Desk means the clients’orders will never be sent to any third element. They will just connect two objects together by provide trading opportunity by create a bridge to a blocked object or a difficult place to approach. This type of brokers only require a low fee for making an order or setting percentage markup on materials by a marginal rise in the spreads. There are two types in No Dealing Desk brokers include Straight Through Processing (STP) and Straight Through Processing (STP+ECN) + Electronic Communication Network.
ECN Brokers’ explanation
In contrast, ECN is a types of forex brokers which offer opportunities for clients to connect with a third element in ECN to find trading opportunities. These elements can be retail traders, other brokers, banks, and hedge funds. The most important point is the bid prices can be dealt by each others to achieve the best one. Besides, traders in ECN can know the definition of the “Depth of Market” where at buying and selling orders are placed. This condition of ECN makes its immovable markup percentage hard to be affected, therefore; they can accept less commission.
Source: Mr. Fanara Filippo of BRKV Forex
All in all, whenever you have a comprehensive view of types of forex brokers you will fully know how to chose and invest wisely.