Lets know about the Types of Forex Brokers

 

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DEALING DESK BROKERS

These brokers are also termed as the ‘Market Makers’ as they earn income through widening the spreads. Dealing Desk broker is the one that provide the inter-bank liquidity to its clients. Thus, its clients are unable to have a watch over the ECN spreads available in the market.

DD Brokers control the prices at which the client will get a fill by playing around with the spreads they are providing. The process can be explained as:

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NO DEALING DESK BROKERS

As suggested by the name, there is no desk involved through which the clients’ order is passed. The order is passed directly to the market makers or the liquidity providers. So, it can be said that the broker is just acting as the link between the client and the real inter-bank market rates.

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It shows that the brokers just builds a connection between the two areas and does not need to take the opposite side of the clients’ trade.

The No Dealing Desks Brokers can be of two types-

  1. STP Brokers:

These brokers work through the Straight through processing (STP) system.

They have access to multiple LPS, getting bid and ask quote from each of the latter. For instance, the broker has 3 liquidity providers out of which the system will choose the best bid and best offer price.

However, this best bid and best offer price might not be replicated on your platform because the broker must have widened the spread or would have added a mark-up to make some gains out of your trades.

Unlike DD broker, STP broker would route the clients’ orders to the number of LPs. On the acknowledgement of the client’s order, the LP will open an opposite position and the broker will earn from the widened spread.

 

Note: When the LPs change their spreads, the STP brokers will also change their spreads.

  1. ECN Brokers :

Like STP, they also direct the orders to the LPs (mutual funds, banks, other brokers etc.). Here the brokers do not have the opportunity to add a fixed mark-up, but to make some income; they charge commission from their clients.

 

If you want to get into this FX business, then be clear with the kind of broker you want to become.

 

 

 

 

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