brokers desk

Types of forex brokers

Howdy again traders,

We must always look back to the past to better understand the future…said a certain wise man. In the previous post we looked at what makes the internet so damn good. If you don’t know refer back to the post INRODUCTION TO FOREX BROKERS here we found out how brokers came to be and how they made it  simple and convenient. You should start imagining the brokers as the platforms needed to access the Forex market because it still needs some way to access the information and trade the market. So you need a way to access the Forex market to make those ever growing trade profits but don’t know who to choose well your in luck we are just about to demystify (like usual here) the types of Forex brokers and how to know which one is good for you.

First we start of with the two types of brokers. This are the dealing desk(DD) and the No dealing desk (ND). So the dealing desk brokers are also known as Market Makers while the No dealing desks are further divided into Straight through Processing (STP) and Electronic Communication Network (ECN + STP) plus Straight Through Processing.

A Dealing Desk Forex broker makes money through the spreads (difference between bid and offer price on a trade) and providing liquidity(leverage) to there traders. They also manage risk by taking the other side of clients trades by taking both sides of the traders positions. Confusing you might say but not after you read this….get ready ill make it as simple as possible. Lets say you create a buy order of 1000 units they have to look for a similar sell order (the opposite of your trade for 1000 units)….pause think here they want to make money however the market goes by only making money on the spread not the trades. So the dealing desk creates a market for their clients by looking for similar orders opposite of the trader so as to make money on the spread.

No dealing desk brokers here they don’t pass they deals or trades through a dealing desk as the name suggests. This means they don’t take the opposite side of a traders trades but link to willing parties together. They make their money through charging s commission or increasing the spread slightly as per their terms. They either give you a straight through process (STP) or Electronic communications network (ECN). In STP they look for the orders sort them from best to worst and add their markup. In ECN they allow you to see the trades and choose your best and worst from other traders. This means they make their money by charging a small commission for finding and showing you those trades.

Here we move to Dealing vs No dealing desk brokers..

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