Forex Education

What is Forex Broker and Types of Forex Brokers

types-of-forex-broker

Forex broker is the mediator among the forex trader and forex market. In other words you can’t access to inter-bank and forex market without forex broker that provide you platform for forex trading. Forex broker’s also commonly known as currency trading broker and retail forex broker.

Forex broker provide their services and in return they charge some fee in term of commission. Spread, that is the difference in buying and selling prices is also commission of forex broker. Forex brokerage house helps to trader to remain active in forex market and it doesn’t important traders are winning or losing. Active traders are beneficial for broker because when a trader place trades in market, broker earn their commission. When a trader lose capital in trading then broker also lose business from that trader that is the reason winning trades and making profit by trader is beneficial for both trader and broker.

Types of Forex Brokers

Major types of forex brokers are:

  • Dealing Desk Brokers
  • Non Dealing Desk Brokers

The first type of forex broker is also known as market maker and these kinds of brokers have dealing desk.

Second type of broker is ‘non dealing desk’ that is real and true brokers. These kind of true brokerage house plays rules of intermediary in between inter-bank and trader.

Forex brokers further divided in sub categories that are described below in detail.

Types of Forex Brokers

Dealing Desk / Market Maker

Market makers’ brokers create markets for their customers, in other words you can say that they show the price that reflects from real market and don’t allow this access to clients. To get success, broker place opposite trades of their clients. For example if a trader place sell trade in currency pair then broker will place buy order with same value of amount because as we know that 80% of retail traders lose money at the end. And when a trader lose money broker gets profit because of opposite trades. We also can say that if a trader beats market, it actually beats broker.

Brokers wining chances are 80% and this is not bad for a good business and I think market maker broker earn more profit then not dealing desk brokers.  On other hand there are also some brokers with good reputation and regulation in forex industry that are good in their services and dealing with their clients.

Non Dealing Desk

Non dealing desk is the true type of forex brokers and these kinds of broker make their profit from spread and commissions. These true brokers pass trades to the liquidity provider. This type of brokers further divided into two types STP brokers and ECN Brokers.

STP Brokers

STP is the short form of ‘Straight Through Processing’ and this kind of brokers have trading department that divide trades of their clients in two categories. One the type of traders that earn profit most of time and second is trader who lose their capital. STP brokers can pass some of the trades to liquidity provider.

Now the question is how broker know in advance that a broker will win or lose? Many things indicate some important numbers. One more thing if any trader start trading with small account broker knows that high chances this trader will lose at the end. This is just example there are many things in this screen process of broker that are more complex to understand.

ECN Brokers

ECN broker means ‘Electronic Communication Network’. This kind of broker is best for trading and real brokerage house and trader can trade in real inter-bank market. In the inter-bank market many brokers, institutional investment companies and banks trade. There is one drawdown when trading with any ECN broker that when we place order during big economic news release execution of order may have some slippage.

Conclusion

Banks, financial institutions etc that provide platform for trading in inter-bank market are brokers. And we should choose best broker for trading that must have good reputation and proper regulation with authorities. You should use real non dealing desk broker or any well reputed broker.

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