Different Types of Forex Brokers

Different Types of Forex Brokers


The foreign exchange market is a global, decentralized marketplace where currencies are traded. This includes all purchasing, selling, and exchanging currencies at current or set prices.

When opening a retail forex trading account, it is necessary to consider the many types of forex brokers accessible to conduct your currency transactions. This is a crucial decision since the type of forex broker you choose can impact both the level of service you receive and your transaction fees and dealing spreads.

Different types of brokers in forex offer online trading services. Some brokers provide legitimate services, while others offer illegal and deceptive services. Let’s discuss the main types of brokers in detail.

What are the Different Types of Forex Brokers?

Forex has two main types of brokers: dealing desks (DD) and non-dealing desk (NDD)brokers.
Dealing desk brokers are known as market makers. Non-dealing desk brokers are further divided into two categories, which are straight-through processing (STP) and

Electronic Communication Network + Straight Through Processing (ECN+STP).

Dealing Desk Broker

Dealing desk brokers are also called market makers. They will accept trades from their clients without actually trading in the underlying market. They will provide a quote based on the underlying market price and sit on the opposite side of the client's trade. Desk broker may only sometimes trade in the real market to balance their risk when they accept a trade.

They may also offset this exposure by keeping other clients opposite trades 'in house'. This method of retaining transactions in-house is known as maintaining a 'B book', allowing dealing desk brokers to keep all the profit from their clients' lost deals.

No Dealing Desk Broker

When a company says it is doing “no dealing desk broker policy,’’ it means this is trading in the real market without any delays. This differs from the dealing desk policy because Brokers might act as the other side of your trade. In the no-dealing desk policy, brokers send your trade in the market without any risk against you.

The broker gets money only from the small price differential (known as the spread) on each deal, no matter whether you win or lose. You can also access fair prices from many buyers and sellers, and the broker will not be against you.

STP Broker

STP brokers, or Straight Through Processing brokers, send your orders directly to their liquidity providers, like banks, hedge funds, or other brokers, without going through a middleman like a dealing desk. Brokers' platforms work smoothly and fast without any interference. No dealing policy is included in this process, and the brokers process your order without any delays or re-quotes. This is an excellent benefit for traders because they can trade during financial new releases without any limits.

STP brokers benefit from having many liquidity providers since an increase in suppliers in the system results in better fills for clients. Many STP brokers will source liquidity from banks that trade on the Interbank market.

ECN Broker

ECN brokers use electronic communication networks to access other traders in currency markets. They offer tighter spreads and combine prices from many sources than regular brokers. ECN brokers do not use dealing desks or trade against clients. Instead, they electronically match trades to liquidity sources. They offer a fixed commission for each trade rather than profiting from more significant margins.

Conclusion

In conclusion, choosing the right forex broker is essential if you want to become successful in trading. It’s important to know the types of brokers in Forex, their pros and cons, and how they match your needs. If you think carefully about these factors, you can find the best broker that supports your trading goals.