What types of Forex brokers are there?

[Myles]

 

[Sam Farrah]

Hi Myles. there are two types really, and I hope this is what you are referring to. Dealing desks and no dealing desks. Dealing desk brokers will take the other side of your trade, so are essentially trading against you. But they will only take the other side if there are no matching orders to take the other side.

 

no dealing desks don't do this, they will look to find a way to match your trade with someone taking the other side. They can also be split into ECN and STP brokers but that may be a bit too in depth for now.

 

[Brandon]

Hello Myles,
Before you start dealing with Forex, you already know that you have to involve brokers. And before you go for any broker, you need to know the different types of Forex brokers that exist.
The two leading types of Forex brokers are the Dealing Desks (DD) and the No Dealing Desks (NDD).
A Dealing Desk broker, also known as a market maker, normally make money from spreads. They also provide liquidity to clients.
 Dealing Desk brokers create a market for their customers. They fulfill both the buying and selling orders of their clients.
The no dealing desk brokers, on the other hand, do not support the trades of their clients since they join two groups together. NDDs may charge a small fee for trading. They may also place a markup by moderately increasing the spread.
The No Dealing Desk brokers may further be classified into; Straight Through Processing (STP) and Electronic Communication Network + Straight Through Processing (ECN+STP).

[EXPERT'S ADVICE]

Hello Myles,

When trading in the forex arena, you need to involve brokers, and choosing the best one should be based on your needs. Let's take a look at the two main types of brokers and which you should choose to suit our interests. The main types are

·         Dealing Desk Brokers (DD)

·         Non-Dealing Desk (NDD)

Dealing Desk Brokers

Dealing desk brokers as the name suggests are brokers who pass their clients, orders through their desk. They are the ones that fill your order to the market. To make things simple, they are market makers. These brokers operate in a rather peculiar way since they go against your trade. When you make a loss, it is a profit on their side, and when you make a profit, it is a loss on their side. The deal does not sound good, but you have the advantage of fixed spread and dealing with Nano slots. If you are looking for assistance with risk management, this is the best option to go with. Note that this activity is not illegal. The broker can quote a price that is above or below the market price.

This situation is like dealing with people who have access to the cards you are playing with while you are in total darkness.

Non-Dealing Desk Brokers

This type of broker will not pass your order through their desk. They only act as a portal between you and the liquidity providers. You can refer to them as hands-free middlemen who get returns from commissions or slightly marking up the spread. They are further divided into two:

·         Straight Through Processing (STP)

·         Electronic Communication Network (ECN)

Straight Through Processing (STP)

These tpy of broker gives you direct access to the liquidity providers, So you have the privilege of measuring the market's depth. They get returns buy slightly marking up the spread. So the range you will be getting will be marginally higher than the actual in the market. However, you have direct market access.

Electronic Communication Network (ECN)

When using this broker, you have direct interaction with the liquididty providers. The difference is, they do not mark up the spread but charge commissions on trades.

Which one should you go for?

This entirely depends on your preferences and skills.

If you are a beginner, it would be best if you went for the Dealing desk (DD). You will enjoy fixed spread and less risk exposure. You will also enjoy the benefit of being able to trade with Nano lots. The Non-Dealing Desk broker is suitable for advanced traders who want to make the best from each pip. You will enjoy better spreads; however, more risk is associated with this method.