Understanding What Forex Brokers Do
Forex Brokers, IN LAYMAN’S terms, “brokers” could be individuals who act as middlemen or agents. In foreign exchange trading, these persons may be referred to as forex brokers tasked to connect a seller and a buyer to the trading arena.
Since a big number of successful and large forex brokers rely on financial institutions that give them market prices, these prices are handed down to traders in the form of asking or bid price.
One needs to understand the various kinds of brokers and their target niche to fully grasp the nature of their work. Generally, only four types of such brokers exist although other foreign exchange bodies may think otherwise.
Market Makers/Dealing Desks forex brokers
These types of forex brokers are financial experts that run “route orders” through their Dealing Desk. Also known as a “trading desk”, dealing desks provide brokers with instant access to trading executions.
Market Makers quote fixed spreads and they are usually not the kind of forex brokers whom you can depend on as they do not necessarily look after your best interest simply because of their trading desks.
A Dealing Desk forex brokers earns cash through spreads. They also gain financial edge by trading against their customers or clients.
ADD broker is referred to as a “Market Maker” as they “make the market” in the literal sense of the word. Basically, each time traders decide to sell, they buy from a Dealing Desk; when traders want to buy, the sell to them. Dealing Desks always go on the opposite end of the trade thereby creating the market.
DD forex brokers can always have a certain leverage or ability to manipulate with quotes to be able to deal with their clients as most traders do not have access to actual market quotes. DD agents earn cash through asking price or bids which in most cases is manipulated.
For traders who wish to succeed in the complex world of foreign exchange trading, they must be cautious and wise enough before they consider doing business with Market Makers. It may not be common knowledge, but Market Makers own most people’s micro accounts.
This is because MMs may lack liquidity providers and while micro accounts don’t require huge amounts of cash, they won’t hesitate in giving traders a tough time.
No Dealing Desk
These types of forex brokers give access to inter-bank markets without the need to pass orders through the Market Makers. And with genuine NDD brokers, re-quotes on order are no longer necessary and there is also no extra pause in times of order confirmations.
This process enables sessions even during “news times” without any further restrictions on trading. NDD forex brokers have the capacity to do two things: demand for commission for specific trades, or select to hike the spread without charging for any commissions.
No Dealing Desk brokers can either be an “Electronic Communications Network”, or “Straight Through Processing” (STP), two of the four types of brokers.
NDDs can send an order straight from customers to liquidity providers. STP brokers usually have a single liquidity provider, sometimes more. The more liquidity and banks there are in the system, the better the fills for the STP brokers’ clients.
Since STP brokers’ clients have access to markets and have the capacity to transact quick trades without the need for any dealer, this enables such brokers to become transparent in all their dealings. Most important of all, traders will feel a sense of security knowing that the one they are dealing with is genuine and transparent.
Electronic Communications Network forex brokers are considered as the most reliable if not popular among the types of forex brokers because of their quality and the type of dedication and service these brokers provide.
Forex brokers for ECN also enables orders of clients to connect with the orders of other clients and provides a landscape where players, such as Dealing Desks, individual traders and banks can engage in a trade against one another by sending offers and bids on the table.
The Forex market is one of the most fast paced markets and people have managed to make millions through Forex currency trading. Forex trading has tremendous potential to reap huge profits provided you know the right way to do it. Being one of the most popular investment vehicles, it is easier to master the art of Forex trading by attending Forex trading courses or workshops. Forex education can help you a great deal if you want to be extensively involved in Forex online trading. In order to be a successful Forex trader, you need to have a proper Forex trading system in place that will include a good Forex trading software and smart Forex trading strategies to understand the historical trends and plan your moves accordingly.
In addition, you will also need an efficient Forex broker to help you with your trading needs. Well, it can be a daunting task to find a good Forex broker, as the market is flooded with them and it may not be very easy to pick out the ones that may be best for your trading style. Most people prefer to manage their trading with the help of a competent Forex broker who has been around for quite some time and knows the rules of the game. If you are new to the Forex market, trading with a reputable Forex broker can be the difference between winning in this business and losing. The same holds true if you are working with a wrong broker and therefore, good research skills are required to track down the best Forex broker for your needs.
When looking for a Forex broker or a brokerage firm for trading the forex market, you must shortlist all those who have a trusted reputation in the industry. It helps to dig into their history and check on a few of these clients to ensure that they are genuine. This can easily be done online with the help of search engines such as Google, Yahoo and others. When looking for client feedback, make sure that you get unbiased opinions. It doesn’t help if you read glowing testimonies of a forex broker from their own website. Please note that testimony of clients should only be used for guidance and should not be the sole deciding factor.
For many, an ideal broker is the one who has plenty of knowledge about this business and someone who can guide you through the various stages of trading. However, you must be diligent when choosing such a broker and check on their reputation. There are countless brokers out there who are a reservoir of knowledge, are motivated to help you and gladly offer their advice. Forex brokers who are invariably new to the market may lack experience in spite of having other requisites of Forex trading. Trusting your finances with such a company may not be a good idea, as neither of you will be familiar with the roller coaster ride of ups and downs of the market prices. Thus, experienced brokers who have a long history are generally better and help to ensure that your money is in safe hands.
One of the easiest and probably the most reliable ways of finding a good broker is asking for references from friends and acquaintances. This will take away most of the burden of starting from a scratch and also give you a clear idea about what to expect from your Forex broker.
So, ask for referrals, research, and conduct a background check to find the best Forex broker who has profound understanding of the Forex trading business.