Different types of Forex Brokers

There are mainly two large groups of Forex Brokers, The Dealing Desk and the No Dealing Desk:

1) Brokers Dealing Desk (DD)

Dealing Desk brokers are those that give us a counterpart to our operations and therefore have an operating table. For this reason, they will act as a market in which we can buy and sell

Only brokers market maker is in this group:

Brokers Market Maker

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Market Maker brokers are characterized by acting as counterparty to our operations. This means that if we want to buy a lot of Eur / Jpy at 100.60 our broker will sell us a lot at the price we have wanted regardless of whether there is someone on the market willing to sell us a lot at that price.

These types of brokers make a profit through the difference in the sale and purchase price. This difference is called spread and it is supposed to be fixed at all times.

A broker market maker is an organization, be it a bank or a brokerage company, that is willing at all times to give us a counterpart to the purchase and sale price established for the completion of our transaction.

Among the most outstanding advantages and disadvantages of market maker brokers we find:

Advantage

  • These types of brokers usually offer attractive trading platforms with many tools, real-time charts, in addition to showing the economic news.
  • They usually require less capital to open an account.

Disadvantages

  • The market maker brokers have the disadvantage that by giving counterpart to all their clients they can incur losses for the difference between purchase and sale prices. This conflict of interest between their profit and ours can lead them to trade against clients by “sweeping” the stops or slightly distorting the price of the pairs. However, this is not something that all brokers do, since statistically, they obtain benefits since 95% of operators incur losses, but it must be taken into account.

2) Brokers No Dealing Desk (NDD)

No Dealing Desk Brokers are all those brokers that only act as intermediaries between operations in the forex market. These types of brokers usually require more capital to open an account.

This group is divided into two types of brokers, among them we find:

Brokers Electronic Communication Network (ECN)

These Brokers make available to their clients the best purchase and sale prices offered by all the Market participants to which they are connected. These market participants can be Banks, traders, or even a Market Maker or Market Maker.

ECN brokers, like Market Makers, also obtain benefits from the spread, but unlike them, they cannot incur losses for the operations carried out by their clients since they simply do not give a counterpart and do not participate in the market. So they have no incentive to trade against clients.

Among its most notable advantages and disadvantages we find:

Advantage

An ECN broker will normally offer us better spreads since prices are offered by many sources. Also, since they do not intervene in the market, when giving us a counterpart they will not operate against us. However, at certain times in the market prices can be more volatile.

Disadvantages

Some ECN brokers do not have as many options and tools on their platforms as other brokers offer us.

Brokers Straight Through Process (STP)

Straight Through Process brokers connect our operations with their liquidity providers. These providers will normally be banks, other brokers, or financial entities.

Like ECN Brokers, STP Brokers obtain benefits from a small commission that they charge and include in the spread, so they will not have any interest in going against us.

The main difference between STP and ECN Brokers is that ECN brokers, in addition to connecting our operations with those of their liquidity providers, create a network in which all operators can trade with each other.

Hybrid Brokers

Currently, many brokers are DD and NDD brokers at the same time. For example, they can be Market Makers for micro accounts and at the same time, they are ECN for standard accounts.

This can be confusing, that is why it is important to evaluate the conditions that each broker offers us. To do this, you can use the internet to read reviews and experiences of other people with each broker, to choose the trusted forex broker for you.

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