Types of Forex Brokers

When new traders decide to enter the market, the first thing they will have to do is find a reputable broker. Not all forex brokers are the same and it is essential for new traders to have an understanding of this. With three main types of brokers, traders can make a decision that will offer the most benefits in the long run. Choosing a broker is one of the most important decisions that will be made and the type of broker that is selected will have an overall effect on the transaction fees, quality of service and the dealing spreads. Three main choices exist when choosing a broker and these include no dealing desk, electronic communications network and market-making brokers.

The No Dealing Desk forex broker, also known as NDD, will lack a dealing desk. Instead, this broker will offer the best possible quotes and these are obtained from different quote providers in the industry. Each provider will post the best possible market with the chosen NDD broker. This broker will then make sure the transactions are executed and will watch to fill different orders based on the client needs and specifications. These brokers will charge a commission or will widen the spread to make sure they make a small profit from the trades that are conducted.

The ECN, or electronic communications network broker, is one that will not have a dealing desk but will offer a trading platform where the traders, market participants and market-maker banks will enter bids. One of the main advantages of this type of broker is that the trader that is posting the price will have a level of anonymity, which will help traders who are trying to hide the fact they are in on the bid.

Market maker brokers offer a double sided market that is from a trading specialist. If the price is accepted, the broker will take the opposite side of the transaction by purchasing on the bid side or selling the offer side. The goal is to grab a bit of the spread and trade sufficient volume so that they can lay off risk with. Should a large trade be executed, the market maker can opt to offset that trade if they believe the market could move against the trade or they can add it to their own trading book.

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