Forex brokerscome in several types, ranging from the most legitimate brokerage firms to betting houses that work illegally. Forex traders, whether beginners and experts, should carefully choose their brokers to ensure that they will be working with a reliable one. Note that while most of these brokers usually have the same access and qualities in the foreign exchange market, the procedures and policies that they use still differ dramatically.
Each broker also represents a different level in the industry. There are those that represent a high level of expertise in the field and can directly access the market. There are also brokers who are very distant and have little connection to the market. Researching about the different types of brokers is the key towards maximizing your chances of choosing one who can help in transforming you into a successful forex trader. Here are just few of the brokers working in the forex market and the unique functions and roles that they play:
1. Dealing Desk (DD)
This broker refers to a market maker. Dealing desk brokers or market makers usually provide fixed spreads. Most of them also work by electing to quote below or above the real-time market prices at a given time. Working with a dealing desk is a wise move for beginning and expert traders who do not wish to trade directly with liquidity providers. Dealing desk brokers normally receive payment through spreads.
2. No Dealing Desk (NDD)
No Dealing Desk forex brokersallow forex traders to have direct access into the interbank market. A genuine NDD broker does not require the re-quoting of prices. In other words, traders get the chance to trade following any economic announcements without facing restrictions. Working with NDD brokers allows the use of low and unfixed spreads. Since the spreads are not fixed, there is a great tendency for their value to increase significantly when an increase in volatility takes place due to a significant economic announcement. To get paid, NDD brokers might increase the spread or charge a commission on every forex trade.
3. Electric Communication Network (ECN)
These brokers offer and display actual order book details that usually feature processed orders as well as the offered prices by different banks in the interbank market. Most ECN brokers work by offering information to all the participants in the forex market as a means of improving market transparency. They charge a commission on each traded volume to earn income from working with traders. ECN brokers also allow traders to process all their transactions in the interbank market.
4. Straight Through Processing (STP)
STP brokers can directly pass trading orders into their liquidity providers. They do not also interfere in order execution transactions. Most STP forex brokers work with several liquidity providers. STP brokers that work with many liquidity providers can also provide their traders with better chances to succeed in the forex market.
When planning to succeed in foreign exchange, forex traders should make sure that they choose a broker which can offer their required services without engaging in fraudulent activities.