What is a Forex Broker? Forex Broker Definition

Retail Traders do not have access to the kind of funding that will generate such a liquidity pool. There are many types of forex brokers who offer online trading services. Some offer legitimate services while others are illegal and deceptive. Some are regulated by official regulation bodies while others can do pretty much whatever they want.

  • Some offer legitimate services while others are illegal and deceptive.
  • No dealing desk brokers can be further divided into ECN and STP (Straight-Through Processing) brokers.
  • Thus, by opening and closing a position, they pay the spread charged by the Forex broker as a fee.
  • Scalpers can do better with an ECN broker too because their pricing tends to be more volatile.
  • The main feature of copy trading that differs from any other system is the easy copying of the positions of any investor you like.

Total trade value determines the credit or debit in this calculation, not just the portion over the account balance. Another variation is the hybrid broker, which combines an STP or ECN with its own market-making dealing desk. This sounds ominous until you realize that liquidity providers really do not want to work with micro amounts and the broker has committed to orders of a minimum size. By adding its own market maker desk to the system, the broker is able to accommodate the little guy. This, of course, brings up all the familiar stories about your broker trading against you when your gains start getting sizeable. It is conceivable that after you have been trading for a while, the broker has gotten a profile of you and can allocate your trades to the STP side of its shop or the market-maker side.

Different Types of Brokers

The broker can create its own ECN system, but then it becomes senseless, as there will be a relatively small number of participants. The platform automatically sorts out the orders according to the price. Other brokers present themselves as STP, being in fact common Dealing Desks or kitchens. After all, a B-Book kitchen scheme does not always mean a scam, so do not hurry to put labels.

One can also open a demo account which is funded with virtual money to test and learn the broker’s forex platforms and services before stepping into the market with their actual funds. These are called Demo accounts which are also helpful for testing trading strategies and practising trading without risking any funds. As we know, forex trading can be done from anywhere and at any time. To trade forex, an investor must have access to a stable Internet connection which can connect him to an online broker. Forex trading platforms run on any smartphone, tablet or computer because it does not have a particular market like the stock market. If a person trading currencies lose an internet connection while trading, they can face great unwanted losses if the market rolls over.

Forex Broker

Forex brokers come in many forms, from reputable brokerage companies to criminal operators. Forex traders, whether novices or professionals, should select their brokers carefully to guarantee they deal with a trusted company. Note that although most of these dealers generally have the same foreign exchange access and quality, https://xcritical.com/ their processes and rules nevertheless vary significantly. The acronym NDD is sometimes used by brokers that do not want to fall short of regulatory requirements by claiming ECN status. The bottom line is that such brokers will send all your orders to a pool of liquidity providers instead of internalizing them.

different types of forex brokers

B-Book forex brokers operate a more complicated and opaque business model, and many traders feel they have a conflict of interest because their business model relies on customer losses. While some B-Book brokers operate that way, in most cases, they don’t. B-Book brokers use several techniques to handle their customers’ order flow; they might operate a dealing desk, net long and short exposure internally or hedge with liquidity providers. As the forex market is decentralised, there isn’t a market per se. An A-Book broker can simply pass their clients’ orders to a third party, known as straight-through-processing . Many traders view A-Book brokers as having no conflicts of interest, which isn’t necessarily true.


While some think this kind of brokerage benefits the trader, many traders prefer the set spreads. ECN brokers in forex only send your order directly to a liquidity pool. The brokers do this to get better prices and more favorable spreads.

different types of forex brokers

It is also essential to confirm that a broker is legally allowed to serve customers in your location. The brokers regulated in stricter jurisdictions try to navigate the red-tape by using terms like Straight Through Processing or Direct Market Access to suggest that they are ECN brokers. Well, the meaning of these acronyms has nothing to do with the capacity or attributes of the brokers. Make sure your broker holds a license from one of those authorities, and rest assured that you’re trading with a well-regulated firm.

What Are the 10 Fatal Mistakes Traders Make

With the ‘no dealing desk’ model, the broker offsets its exposure on its clients’ trades by matching each trade in full in the underlying market. When there is no types of forex brokers dealing desk, the company might only profit from the dealing spread per trade. They will have no financial interest in whether your trade makes or loses money.

different types of forex brokers

Usually the link to open an account is located on the main page of the broker’s website. PAMM accounts are special Forex accounts types created for investing. A PAMM account Forex is one of the first ways to invest on the Forex market if you don’t have the knowledge and time to trade. In general, all types of Forex accounts from mini to nano are just a way to reduce the initial deposit and high risk when trading.

What Is Forex Trading?

Straight-Through Processing brokerage firms are also known as Direct Market Access brokers. These brokers give their traders direct access to the interbank FX market, where pricing and execution is done by the big banks acting as the liquidity providers. Their product offering is tailored mostly to professional traders who have the experience and liquidity to match the large volumes of trade that are performed at the interbank level. Essentially, dealing desk forex brokers profit by buying at lower prices and selling at higher prices, and by taking advantage of the spreads between the bid and ask price. The global foreign exchange market is the largest and most actively traded financial market in the world.

No Dealing Desk Forex Brokers

You can learn more about Forex trades processing mechanisms, types of order execution, such as Market Execution and Instant Execution, as well as the A-Book and B-Book models in this article. I will deal in more detail with the principles of transactions transfer to the interbank market based on the A-Book model and the hybrid scheme. The matter is that to bring client orders to the external market, brokers need to make contracts with a liquidity provider , obtain licenses, provide technological support. All these are costs that the A-Book broker compensates at the expense of high mark-up to the spread. B-Book brokers still use a live price feed, usually obtained from a prime broker or an aggregated average price feed obtained from multiple sources, taking prices from several banks, exchanges and market makers. STP brokers or Straight Through Processing brokers, is the name given to brokers that, when upon receipt of a client order, will pass on the orders directly to their liquidity provider.

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