Currency traders use these brokers to access the hour currency market. Forex brokers are usually compensated through the bid-ask spread of a currency pair. For example, a retail forex broker may buy euros for 1. It is valuable to do some research to find out whether a broker has a good reputation and has the functionality that you are looking for.
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Most major forex brokers will allow prospective clients to use a practice account so that they can get a good understanding of what the system is like. It is a wise idea to test out as many platforms as possible before deciding on which broker to use. What is a desk dealing forex trader? Forex brokers that operate through Dealing Desk DD brokers make money through spreads and providing liquidity to their clients.
Also called "market makers," Dealing Desk brokers literally create a market for their clients, meaning they often take the other side of a client's trade. While you may think that there is a conflict of interest, there really is not. Market makers provide both a sell and buy quote, which means that they are filling both buy and sell orders of their clients; they are indifferent to the decisions of an individual trader.
Since market makers control the prices at which orders are filled, it also follows that there is very little risk for them to set fixed spreads you will understand why this is so much better later. Also, clients of dealing desk brokers do not see the real interbank market rates. Do not be scared though, the competition among brokers is so stiff that the rates offered by Dealing Desks brokers are close, if not the same, to the interbank rates.
To fill you, your broker will first try to find a matching sell order from its other clients or pass your trades on to its liquidity provider, i.
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By doing this, they minimize risk, as they earn from the spread without taking the opposite side of your trade. However, in the event that there are no matching orders, they will have to take the opposite side of your trade.
Take note that different brokers have different risk management policies, so check with your broker regarding this. What is a no dealing desk broker?
This means that they do not take the other side of their clients' trade as they simply link two parties together. NDDs are like bridge builders: they build a structure over an otherwise impassable or hard-to-pass terrain to connect two areas. NDDs can either charge a very small commission for trading or just put a mark-up by increasing the spread slightly.
What is an STP broker?
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Some brokers claim that they are true ECN brokers, but in reality, they merely have a Straight Through Processing system. Forex brokers that have an STP system route the orders of their clients directly to their liquidity providers who have access to the interbank market. NDD STP brokers usually have many liquidity providers, with each provider quoting its own bid and ask price. In their system, they will see three different pairs of bid and ask quotes. Liquidity providers bid AskLiquidity provider A 1. In this case, the best price in the bid side is 1. Will this be the quote that you will see on your platform?
Of course not! Your broker isn't running a charity! Your broker didn't go through all that trouble of sorting through those quotes for free!
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To compensate them for their trouble, your broker adds a small, usually fixed, mark-up. If their policy is to add a 1-pip mark-up, the quote you will see on your platform would be 1. You will see a 3-pip spread. The 1-pip spread turns into a 3-pip spread for you. Your broker will earn 1 pip in revenue. If the spreads of their liquidity providers widen, they have no choice but to widen their spreads too.
While some STP brokers do offer fixed spreads, most have variable spreads. What is an ECN broker?
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True ECN brokers, on the other hand, allow the orders of their clients to interact with the orders of other participants in the ECN. Participants could be banks, retail traders, hedge funds, and even other brokers. In essence, participants trade against each other by offering their best bid and ask prices.
ECNs also allow their clients to see the "Depth of Market. Because of the nature ECN, it is very difficult to slap on a fixed mark-up so ECN brokers usually get compensated through a small commission. Dealing Desk vs. No Dealing Desk Forex Broker. Which type of broker should I choose? A dealing desk broker? Or a no dealing desk broker? That is completely up to you! One type of broker is not better than the other because it will all depend on the type of trader you are. It is up to you to decide whether you'd rather have tighter spreads but pay a commission per trade, versus wider spreads and no commissions.
Usually, day traders and scalpers prefer the tighter spreads because it is easier to take small profits as the market needs less ground to cover to get over transaction costs. Meanwhile, wider spreads tend to be insignificant to longer term swing or position traders. They want to do business with you, and not run you out of business! Think about it, if you lose all your money in trading, they too will lose customers.
The ideal client of dealing desk brokers is the one who more or less breaks even. In other words, a client who neither wins nor losses at the end. That way, the broker earns money on the client's transactions, but at the same time, the client stays in the game by not blowing out his account.
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In essence, brokers want their clients to keep coming back for more trading. Dealing6 crucial factors to consider when choosing a broker. The first and foremost characteristic that a good broker must have is a high level of security. After all, you are not going to hand over thousands of dollars to a person who simply claims he is legit, right?
Fortunately, checking the credibility of a forex broker is not very hard. There are regulatory agencies all over the world that separate the trustworthy from the fraudulent. List of countries with their corresponding regulatory bodies: Before even thinking of putting your money in a broker, make sure that the broker is a member of the regulatory bodies mentioned above.
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Transaction cost. No matter what kind of currency trader you are, like it or not, you will always be subject to transaction costs. Every single time you enter a trade, you will have to pay for either the forex spread or a commission so it is only natural to look for the most affordable and cheapest rates. Sometimes you may need to sacrifice low transaction for a more reliable broker. Make sure you know if you need tight spreads for your type of trading, and then review your available options. It's all about finding the correct balance between security and low transaction costs.
Deposit and withdrawal. Good forex brokers will allow you to deposit funds and withdraw your earnings hasslefree.