So you’ve decided to jump into the world of Forex trading. Well, congratulations and c’mon in! We have a few details to sort out but it’ll be pretty much painless. So, have your decided on what kind of broker you wish to use? Yeah, there are different types of brokers and we can take a closer look at them for you right now.
Two Main Types of Forex Brokers
We’ve simplified it down to the point where you are going to find yourself dealing with one of two specific types of Forex brokers. One is a Dealing Desk, or Market Markers (DD). The other is No Dealing Desk (NDD) and there are a couple of different types of NDD but we’ll get to that a little bit later.
The Dealing Desk Broker (DD)
The Dealing Desk broker makes their money through spreads and by providing their clients with liquidity. So in other words, you can imagine the DD broker as a broker who actually creates the market for clients like you which often places them at the other side of your trade. The DD broker essentially works both the buy and sell portions of a trade.
The No Dealing Desk Broker (NDD)
As the name implies, the broker does not forward your trade through a dealing desk. They do not end up taking the other side of your trade, either. A NDD broker simply tries to link two parties together to complete a trade.
We Said There Were More, So Get Ready
Remember when we said there were more types of NDD brokers? Well, there are two more. They are known as Straight Through Processing (STP) brokers or STP+ECN. Don’t worry, we’ll explain the difference here in a moment.
The STP Broker
In simple terms, a broker with a STP system will send your order directly to the liquidity providers they have partnered with. The liquidity providers would have access to the interbank market. In other words, a STP broker can complete your trade with a slightly different approach than other brokers. They usually earn their keep with a slight markup on your trade.
The ECN Broker
The ECN broker uses an electronic communications network, which is where their name comes from. What they do is allow traders to interact with orders places by other market participants through the ECN. Essentially it creates a climate where traders are trading against each other by offering the best possible bid and ask prices. ECN brokers earn commissions on trades.
Did You Get All of That?
Although it may sound a bit on the complicated side at times, Forex trading is far from complicated if you know what you are doing. It is a good idea to try each of the different brokers to see what fits best for your style of trading. You may find that you will need to use more than one type in order to achieve your Forex trading goals.