STOCKMARKET TRADER

The Different Types Of Forex Brokers

Throughout my many years’ experience in forex trading I have traded forex with many different forex brokers. I have had the misfortune to trade forex with some very bad broker’s who’s only intentions was to get their hands on my money. I have also traded forex with some very good forex brokers, where I have made a considerable amount of money.

In forex trading there is not just one type of forex broker and this is what people who are new to forex trading need to understand. The main types of forex brokers are; Market makers or known as dealing desk, Fixed spread brokers,  STP Brokers (Straight Through Processing) and ECN Brokers (Electronic Communications Network) For someone who is new to forex trading, it may be difficult to know which kind of forex broker to choose. We are going to take a look at the main types of forex brokers and tell you the advantages and disadvantages of these types of forex broker.

The first kind of forex broker we will take a look at is the Market Maker also known as a Dealing Desk broker.  I did say that I would tell you the advantages and disadvantages of forex brokers, but it is hard to think of and advantages of using a market maker broker, compared with other forex brokers. There are quite a few disadvantages though, which although do not apply to all forex market makers. One of the biggest disadvantages is that a market maker trades against you. For this reason it is in their interest that you do not make money. This is not to say that a market maker forex broker will intentionally steal your money, but it has been known for market maker brokers to have “problems with their trading platform” which are at a very convenient time for them. Having said that, there are still some very good and reputable dealing desk forex brokers.

A STP forex broker or “straight through processing” forex broker, make their money by charging the customer (trader) a spread. This spread can be fixed, meaning that the spread stays the same no matter what the market conditions are. Or it can be variable, meaning that the spread may slightly change depending on the market conditions. You will find that with a variable spread, it will normally change when there are important announcements being made, such as the NFP (Non Farm Payroll) announcement. All STP forex brokers have contracts with major liquidity providers. Due to the fact that the liquidity providers have terms and conditions about trades, i.e. the minimum amount that can be traded, not all trades can be placed if the trader is using a small account. In this case the STP broker will place the trade, so it is acting as a dealing desk forex broker. For all larger orders the STP broker will send the order directly to the liquidity provider.

The best kind of broker to trade forex with is and ECN forex broker  (Electronic Communications Network) An ECN forex broker has direct access to the liquidity providers, like a STP forex broker with the difference that they never operate a dealing desk. As soon as you place an order with an ECN forex broker, your order goes straight to the liquidity provider. Unlike other forex brokers this means that you will get the price that you order without any slippage. ECN forex brokers also offer their clients very tight spreads, a lot lower than a market maker broker. One disadvantage of an ECN forex broker is that some but not all also charge a commission on trades. Usually this is not a big deal as their spreads are so much lower than other forex brokers 

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