Forex Knowledge of Forex Brokers 2 - Different Types of Forex Brokers

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The first step in choosing a cashback forex forexrebatenetwork to find out what your options are You wouldnt know what to order as soon as you walk into a restaurant, would you? Unless of course you are a regular there most of the time you will look at the menu first to see what they offer There are two main types of What is forex rebate: dealing bestforexrebate (DD) Whatisforexrebate non-dealing desk (NDD) dealing desk brokers are also known as market makers, while non-dealing desk brokers can be further subdivided into straight-through processing (STP) and electronic communications network plus straight-through processing (ECN+STP ) What is a dealing desk broker, also known as a market maker? A foreign exchange broker that operates through a trading desk, earns money on spreads, and hedges transactions with its clients. A trading desk broker, also known as a market maker, literally creates a market for its clients and sets an artificial exchange rate for foreign exchange. Since market makers control the prices, there is little risk for them to set fixed spreads (you will understand why better later) Also, clients of dealing desk brokers cannot see the actual interbank market rates but dont be afraid, competition among brokers is fierce and dealing desk brokers offer rates that are close to interbank rates, even if they are different from those traded through the dealing desk Lets say you set up a 100,000 unit EUR/USD buy order through an over-the-counter broker. In order to satisfy your trade, your broker first tries to find other clients that match you or route your trade order to a liquidity provider, i.e. a large entity that contains both buy and sell orders for financial assets. However, in case there is no matching order, they will have to hedge with you. Note that different brokers have different risk management policies, so check this aspect with your broker What is a non-dealing desk broker? As the name suggests, non-dealing desk brokers do not pass their clients orders through the dealing desk. This means that they do not hedge with their clients, but simply connect the two sides. Over-the-counter brokers can be either straight-through-trading or electronic communication networks plus straight-through-processing What is a straight-through-processing (STP) broker? Some brokers claim they are true electronic communication network brokers, but in reality they have nothing more than a straight-through-processing system. Forex brokers using straight-through-processing systems send their clients orders directly to liquidity providers that have access to the interbank market. Counter-direct broker has 3 liquidity providers in their system, they will see 3 different sets of bid and ask quotes their system will later collate the bid and ask quotes by good or bad In this example, the best bid is 1.3000 (you want to sell high) and the best ask is 1.3001 (you want to buy as low as possible) buy/sell is now 1.3000/1 Is this the quote you see on the platform? Of course not! Your broker is not a charity! Your broker doesnt go to all the trouble of compiling these quotes for free! To compensate them for their labor, your broker slightly increases, usually to a fixed value, the bid/ask price If their policy is to increase the price by 1 pip, the quote you see on the platform will be 1.2999/1.3002 You will see a spread of 3 pips 1 pip spread to you becomes 3 pips So when you decide to buy 100,000 units of EUR/USD at 1.3002, your order goes through your broker If your order is accepted, liquidity provider A or B will have 100,000 units of EUR/USD short at 1.3001 and you will have 100,000 units of EUR/USD long at 1.3002 Your broker gains 1 point from the change in the bid/ask price is also the reason why most straight-through brokers offer different spreads if their liquidity providers spread widens. If their liquidity providers spreads widen, they have no choice but to widen their own spreads although some straight-through brokers offer fixed spreads and most offer variable spreads What is an electronic communications network broker? On the other hand, true electronic communications network brokers allow their clients orders to interact with those of other electronic communications network participants. market participants buy and sell orders, but due to the nature of electronic communication networks, it is difficult to raise prices, so electronic communication network brokers are usually compensated through commissions

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