Types of Forex Brokers

MAJOR TYPES of Forex Brokers

 
There are two main types of Forex Brokers, Dealing Desk (DD) and No Dealing Desk (NDD) brokers: (I) Dealing Desk Brokers (DD) or Market Makers | (II) No Dealing Desk Brokers (NDD). According to each type, Forex orders and Forex transactions are executed in a different way as it is presented below.


 
 

(I) Dealing Desk (DD) Forex Brokers or Market Makers

 
Forex brokers who operate through the Dealing Desk are called Market Makers and usually are offering fixed spreads. Dealing Desk brokers are making money via their offering spreads. Actually Dealing Desk brokers are always trading on the opposite side than their clients do. Of course they provide both bid / offer prices at the same time and in that way they are able to diversificate their market risk through orders of different direction. The competition between the market makers is lowering the bid / offer spread in a way that it is almost similar to the real Interbank Rate. Be aware that sometimes traders don’t see the quotes in real time and therefore this type of Forex Brokers may manipulate their quotes.
 
 
Compare Brokers: » Market Makers

 

(II) No Dealing Desk (NDD) Forex Brokers or Agents

No Dealing Desk Brokers provide their clients with access to the Interbank Market without the use of a Dealing Desk. Real NDD Brokers don’t require order confirmation and their transactions are executed immediately without delays. This works in favor of their clients, especially for those who are trading during news time. No Dealing Desk brokers are making money by widening bid/offer spread and/or by charging commissions. Some NDD Forex Brokers don’t charge any commissions and making money only by widening their offering spread. The advantage of a NDD brokers is that they don’t have any conflict of interest with their clients. No Dealing Desk brokers are either ECN or STP, but some of them are both ECN and STP.
 
 
Here are the basics about ECN and STP Forex Brokers

 

1) ECN FOREX BROKERS

ECN (Electronic Communications Network) Forex brokers provide a marketplace where the participants (traders, market makers, hedge funds and banks) trade against each other. ECN Forex Brokers are basically passing trading orders directly to the market, these orders interact with other trading orders and therefore transactions are executed. All trading orders are matched in real time. A true ECN Forex broker must provide anytime its clients with the Depth of the Market (DOM) data table (as seen on the picture –MT4). An advantage that ECN brokers are providing to their clients is trading anonymity.
 
Compare Brokers: » ECN Brokers
 
 
 
2) STP FOREX BROKERS
STP (Straight Through Processing) Forex Brokers are passing trading orders directly to their liquidity provider. STP brokers don’t interfere when executing orders. Usually STP brokers have many liquidity providers. Furthermore, the more the liquidity in the system, the better are the fills for the traders.
 
 
Compare Brokers: » STP Brokers
 
 
 

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Types of Forex Brokers
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