Forex Brokers

These act as agents or intermediaries between you the trader and the inter-bank network. They provide forex traders with access to the trading platform to buy and sell foreign currencies. Brokers are the go-between that pass the customers’ trades to market makers and they get their commission on the bid-ask spread of currency pair.

Electronic communication network.

 Electronic communication network is an electronic system that allows orders entered by market markers to forex traders and at the same time matches traders’/customers’ buy and sell orders at a specified price. It is a computer driven network that automatically matches buy and sell orders and charge.

ECN connects major brokerages and individual traders so they can trade directly between themselves without using middlemen. The fact that traders set their own prices, ECN has enabled traders to incur less on commission for trades taken because traders determine their own prices and cost.

Different types of forex brokers

Brokers are intermediaries who execute trade in the forex market. They act as the go-between for the traders and liquidity providers. Forex traders can trade directly either with market makers or themselves. There are two types of brokers; the  dealing desk brokers (DD) and no dealing desk brokers(NDD). It is a very important to know the type of a broker you need and  choose that broker. We shall help you to know the different types  and how they operate.

The dealing desk brokers

 These are brokers who operate through the dealing desk and make money through spreads. They provide liquidity to their clients(market makers). These brokers set the bid and ask price at which they are to buy and sell to their clients.

The dealing desk brokers make money by buying at lower prices and selling at high prices through taking advantage of bid and ask spreads.

The terms and conditions are always stated clearly and all traders choose to trade along  after accepting the terms of trade. They process the trade either by placing clients against each other or taking trades themselves. Placing traders against each other helps them to minimize risks.

For example when client A wants to buy EUR/NZD at 1.58264 and client B wants to sell it at 1.58264,same level, they are then matched by the broker and if there are no matching clients, the brokers take the sides themselves hedging your position. The clients do not see the inter-bank rates and spreads but due to the stiff competition of brokers they get almost the same rates.

The No dealing desk broker

 These do not pass their orders through the  dealing but rather do it directly to  their liquidity providers. The no dealing brokers offer traders with access to the inter-bank forex market. No delays in filling orders, re-quotes and no conflict of interest. They are grouped as Straight-Through processing(STP) and electronic communication network.

Straight-through processing brokers

 These have a system that takes orders directly to the liquidity providers who have access to the inter-bank market. They usually have many liquidity providers with each quoting its own bid and ask prices. There are no delays since orders are filled directly to the liquidity providers and STP’s make money by adding small commission/ markup to the spread.

There is no conflict of interest between both parties because whether the trader makes or loses money, the broker will get the same markup.

The ECN brokers

The Electronic Communication Network provides a platform for traders to execute their trades. These connect their clients to liquidity providers. The brokers obtain liquidity from the liquidity providers and make it available for trading to its clients.

The ECN automatically matches the orders requested at available best prices and traders get a chance to interact with other participants and are able to meet the depth of the market. The depth of the market shows where the buy and sell orders are displayed.

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