There are two possible careers that you can enter into in the forex market. You can either be a broker or a dealer. But before you decide which career you will venture into, you first need to understand the difference between the two. Robert Peter Janitzek helps us differentiate one from the other.
What Are Forex Brokers?
Brokers organize trades for their clients—the traders. They serve as middlemen who will match thee buy and sell orders from their clients to order clients buy and sell orders. Their job is similar to a real estate agent who sells the property of a seller to another buyer. They do not make money like a dealer. To gain some profit, they charge a commission from their clients.
There are not enough true forex traders compared to retail traders. However, with a little research, you will be able to find one. Just make sure that they are from Electronic Communication Network (ECN) or Straight Through Processing (STP). According to Robert Janitzek, both are non-dealing brokers so they only match client with clients.
What Are Dealers?
Most amateur forex traders utilize the services of a dealer and not a broker. They are also called liquidity providers and market makers. It is worth noting that they are not brokers. They trade with their clients by buying low and selling high. While both brokers and dealers need clients to utilize their service.
Dealers only think about themselves and are after how much money they can make which is to the detriment of the trader. The job of a trader is to help their clients find the price. On the other hand, when trading on the forex market, dealers care less whether the traders wins or loses, what they are after is to balance their books.
Because most people are ignorant of the facts, the status and standing of dealers is completely unfounded. There is a certain sense of cynicism and suspicion of dealers that borders on illegality. If you are a trader, dealers are your adversary that can affect your ability to make a profit one way or the other due to the spread they generate.
However, it would not be possible to trade so they are vital to your job.
Both dealer and broker maintain a good relationship with large financial establishments such as banks and thus have preferential rates. They supply many orders to these establishments and have proven to be honest with good financial footing. They pass on these privileged rates to their clients so they can better rates.