Who is a Forex Broker and How Can You Choose the Best?
A forex broker refers to an agent who acts as the link between the buyer and the seller in the forex market. Most brokers in the forex market have large banks which provide them with the market prices of various currencies which are then relocated to the traders as the ask or bid price. To know and identify the best forex broker, it is good to know first the various types of brokers in the market. It may also be important that you hire or consult a well established forex company to guide you in trading. In the wake of ever increasing technology, online forex trading is very common and you can make or lose money in trading over the internet and worst of all you can be scammed so be cautious. Ensure that first of all you deal with a legit well established forex company. The are four well established types of brokers are market makers (DD), the Straight Through Processing (STP) brokers, No Dealing Desk (NDD) brokers and the Electric Communications Network (ECN) brokers.
Market makers have what is known in forex markets as the Dealing Desks and that is why they are abbreviated as DD. Most traders hold the view that these brokers do not have their interests at heart because as the name suggests, they (these brokers) just make the market for the forex traders. For traders who want to sell, the DD brokers buy from them; for traders who want to buy, these brokers sell to them. These brokers make money through by not trading in favor of its clients and through spreads. They are never at the same sides of trade with the brokers because their main aim of brokerage is creating the market for the forex traders. In this case, the trader is unable to see the true market price quotes and the DD brokers can manipulate the quotes (the ask or bid price) in away in which they make huge profits. Most forex trading experts discourage traders from trading with the DD brokers because it is only the brokers who benefit from the trade in most cases and not the trader.
The NDD are those brokers which deal with the provision of interbank market access with no orders passing via the Dealing Desk. These orders pass the market quotes as they are to the traders and do not have any major intentions of making major profits by manipulating the bid or the ask price. These brokers make profits by charging a trading commission or by increasing the spread thereby making the forex trading free of any commission. Most NDD brokers are either a combination of ECN and STP brokerage or just like the STP brokers.
STP brokers send client’s orders directly to the providers of liquidity which are usually banks which participate in the interbank trading. STP brokers may at some times and instances have only one provider for liquidity while in other times, they may have several. An increase in the number of banks and liquidity in the system means better and more profitable trade for the brokers. The traders can indeed access the market and trade without these brokers. These brokers are preferred by most forex traders because of their transparency and honest in trade.
The ECN brokers are regarded by most forex traders and other online forex trading professionals because of their transparency. These brokers allow all the forex trade participants to trade freely by sending competitive offers and bids into the market. There is free interaction and no interruption or linking of one participant with another. ECN brokers charge only a small fee for their services.
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