Part of your success in forex trading is choosing the right kind of broker. They will have a huge role in handling your forex transactions so you need to make sure that you make the right choice. It is an important decision because the type of broker you will choose can affect the quality of service you receive as well as the transaction fees and dealing spreads.
There are three types of forex trading brokers and they have different ways of handling transactions and executing orders. Let us now different each type of broker.
No Dealing Desk Forex Brokers
From the name itself, this type of broker does not have a dealing desk. Robert Janitzek reveals that they offer the best composite quotes obtained several forex quote providers that provides them with liquidity in the market. Each provider will post their best markets with the broker. The broker then executes transactions and watches and fills orders for their clients. The broker will then charge a commission or widen their bid/offer spread in order to make a small profit on each trade executed.
Market makers will offer customers two sides of the market coming from a specialist forex trader operating as part of their in-house dealing desk. If the price is dealt on, Robert Peter Janitzek reveals that the broker will end up taking the other side of the transaction by buying on the bid side or selling on the offer side of the quoted prices. The broker’s objective is to capture a portion of the spread and do sufficient volumes on both sides to prevent laying off accumulated risks with another professional counterparty.
If the trade executed is large enough, the market maker broker might off to offset the trade right away especially if they think that the market might move against it. Another option is for them to add it to their trading book, depending on their market outlook and size of transaction.
Electronic Communications Network (ECN) Forex Brokers
When trading on the forex market, an electronic communications network or ECN broker provides an electronic trading platform where market makers, traders, and other market participants enter bids and offers. The advantage of an ECN forex broker is that the trader posting the price can be anonymous. This can be perfect for traders who do not wish to give away the fact that they are on the bid or offer.