Generic selectors
Exact matches only
Search in title
Search in content
Search in posts
Search in pages

Types of Forex Brokers5 min read

There are several models of Forex brokers in the market. Understanding them is one of the key factors that helps in choosing the right broker. The broker’s action model greatly influences his business model and determines what he really makes money from. Are you interested in what is the best Forex broker? Choosing a broker, you should familiarize yourself not only with the terms of trade on its platform, but also with the conditions of its activity. Features such as jurisdiction or available licenses are just as important as the size of spreads, commissions, or work models.

Market Maker (MM) Exchange broker

Market Maker (MM) – brokers most often do not send orders to the interbank Forex market, but only enter into transactions with the client, of course, they take prices from this market, that is, create their own market. Such brokers can manipulate prices when a client earns, which leads to a conflict of interest. Therefore, some MM brokers may hamper or prohibit certain types of transactions.

Because of the conflict of interest described above, brokers of this type do not enjoy a good reputation, and this is often a mistake. If you are a beginner investor in the foreign exchange market and have a small capital, the choice of this type of broker will be the most correct.

Dealing Desk (DD) or Dealing Center

Dealing Desk (DD) – a type of broker that provides trading in this way: they place their own orders and support fixed spreads. They earn money by trading with their own traders, and by setting high spreads! It follows that it is possible to make buy / sell transactions with Dealing Desk brokers practically without risk only with cent accounts or with a small capital.

No Dealing Desk (NDD) Exchange broker

No Dealing Desk (NDD) – this is a type of broker that provides its players with access directly to the exchange without processing orders by Dealing Centers. Such a trading scheme tries to prevent unnecessary waste of time in order verification. NDD stock broker to earn or put a commission for opening / closing trading operations, or make a large spread and this will entail trading without commissions to its traders.

Electronic Communication Network (ECN) Exchange broker

Electronic Communication Network (ECN) – a broker who forms his own trading system in which his players draw up transactions depending on mutual requests. Such a broker does not have a Dealing Desk. The main resource for profit will be the availability of commission for trade support. Also ECN broker has floating spreads according to the size of invitations trades to sell and acquire from own players.

Straight Through Processing (STP) Exchange broker

Straight Through Processing (STP) – this broker function is to offer its participants entry / exit to the real exchange market and market prices, and they also have the right to execute orders immediately without involving the Dealing Center. This type of broker makes profit on commissions for a traded lot or on a spread, which can be fixed or floating. For STP brokers, the specifics of an account is that the submission of an application to open an order (it goes through special technologies not to the broker) comes directly to the bank, which automatically processes it.

ADVANTAGES OF WORKING WITH AN STP BROKER:

  • Orders are executed instantly as soon as traders place them;
  • There are no intermediaries, that is, the risks of capital loss due to the intervention of third parties are minimal;
  • The broker is interested in the success of traders, since his earnings directly depend on this;
  • Commissions are the lowest;
  • Execution of orders is carried out with maximum accuracy.

STP, NDD and ECN – what is the difference?

NDD is a type of trade in which transactions are concluded directly. ECN and STP are types of NDD.

  • ECN – direct transactions. Can be done through a broker.
  • Systems with Straight Through Processing or STP are also trades directly, but only through a certain company.

The more banks the organization collaborates with, the better it is for STP trading. This helps you instantly find counter claims. For example, large brokers provide customers with instant order execution through a large network of banks.

Therefore, although STP, NDD, ECN systems are different, one can equally successfully work on any of them. The main thing is the right choice of the company: the technical result depends on it.

How to distinguish an ECN broker from a regular Dealing Center

Today, many terms have been blurred. For example, a dealing center can be called both branch offices and ordinary brokerage companies that do not withdraw transactions to the interbank. For traders, the relevant question is how to distinguish an ECN / STP broker from a dealing center that will not carry out direct work?

To do this, request official documents. With worthy companies, they are posted on the site. The contract or license should indicate which system the broker works on.

What to look for when choosing a broker for ECN

First and foremost is reputation. Any similar company has bad and good reviews: at least, competitors will try. But the trend is easy to track. The second is the features of those ECN systems through which selected brokers work. It is worth asking about the pros and cons of each, and in accordance with this make a choice.

After analyzing the proposals, identifying those with whom to work optimally will be simple. Then trading will be productive and easy, without technical failures, on more favorable terms.

And you need to know that in recent years, most modern brokers have combined several business models, so it is quite difficult to find an exchange broker of just one type!