The Three Main Types of Forex Brokers
If you are planning to open a retail trading account make sure you know the different types of Forex brokers available in order to handle your Forex transactions. This is an important decision because the type of Forex broker you will choose can affect the quality of service you will receive, you transaction fees as well as dealing spreads.
There are three main choices when it comes to choose which type of Forex Broker you will choose:
- No dealing Desk
- Market Maker
- Electronic Communications Network
Each one of them have a different way of handling transactions and executing orders.
Details about the types of Forex brokers will follow.
#1. No Dealing Desk
The No Dealing Desk (NDD) type of broker as the name suggests it lacks a dealing desk. However, it offers the best composite quotes obtained from numerous Forex quote providers that give NDD brokers liquidity in the Forex market. The spread they offer is less but not fixed and when the fluctuations increase during a major event, then the spread will increase significantly.
In addition, non-dealing desk brokers provide direct access to the inter bank market for their clients and cannot enter into a transaction on the opposite side of their customers and only play the role of the medium between two sides of transactions.
There are two types of non-dealing desk brokers the STP Brokers and ECN Brokers. Which we are going to explain later on.
#2. Market Makers
Market Makers or Dealing Desk (DD) brokers as the names suggests is the one that creates a market for clients. They bring income for the clients through spreads and provide liquidity. Market brokers offer fixed spreads and charge a commission amount on the lowest cost price for your transactions.
Furthermore, if the executed trade is large, the market maker can choose to balance trades, especially if they believe the market may move in the opposite directions. Otherwise, they can add it to their trading book depending on their market outlook and size of the transaction.
#3. ECN Forex Brokers
This type of Forex broker does not have a dealing desk however it offers an electronic trading platform where participants such as market makers at banks, traders and other Forex market participants can enter bids and offers through their system.
ECN brokers do not allow the cost of selling or buying to increase. Therefore, a small fee is required.
Bottom Line
There are several traders who are interested in investing in currencies. However, it is important to use one of the many types of Forex brokers. We recommend to increase your education and knowledge about them and decide which is better based on the conditions. You need to analyze the pros and cons and choose the one who will bring huge profits.
