Choosing a Forex broker, you must first find out what the options are. So, there are two main groups of brokers: Dealing Desks (DD) and No Dealing Desks (NDD).
Dealing Desks Brokers
DD-Broker (Dealing Desk) is a brokerage company that trades against its customers. Such brokers are also called “market makers” because they put their own orders, pushing the market in the desired direction. DD brokers play the role of buyers and sellers in the Forex market and also they are the kind of contractors to their clients. Market makers create demand, making possible to major transactions implement.
The Dealing centers’ feature is that, working with them, a trader doesn’t have access to market prices. This allows these brokers to carry out manipulation with quotes. They profit not only from the difference in spreads, but also from the losses of their customers. DD brokers usually offer only fixed spreads.
The DD brokers’ client base can be divided into successful and not so successful clients. The orders of not very successful clients are processed automatically. Such traders often suffer losses, creating a profit for the broker. Operations of successful clients are monitored more carefully. Their orders are executed first, but there may be delays in order execution (requoting). Thus, the company can limit its losses and reduce risks.
No Dealing Desks Brokers
These brokerage companies work differently. They give their clients direct access to the market. It allows traders to conduct trading operations directly, without waiting for the broker’s trade orders processing. In this situation, requoting is almost impossible, which gives traders an opportunity to execute transactions without restrictions.
There are two types of No Dealing Desks brokerage company: STP or ECN+STP.
STP (Straight Through Processing) is a broker who sends the customers ‘ orders directly to the liquidity provider. These providers (banks) may be several, and the larger the number, the better for the client as it increases liquidity.
The main advantage of this broker is an instant orders execution. Besides, direct access to the international market allows their clients to see the actual quotes, which doesn’t leave the opportunities of manipulation. No Dealing Desks brokers don’t trade against clients. Their income consists of a fee which represents a small surcharge to the spread. Therefore, they are not interested in the losses of their clients.
The STP broker provides a choice of fixed or floating spreads. It organizes trade operations in the international markets and receives quotes and spread as an intermediary. Typically, most banks provide fixed size of the spread as the market makers. But STP broker chooses to leave the spread at the previous level or to reset it and allow the system to choose the best prices for purchases and sales. The second option is called floating spread.
ECN (Electronic Communications Network) is a brokerage services system in the FOREX market, through which participants can make direct trading operations among themselves in real-time. The ECN broker provides access to the platform where banks, market makers and individual traders carry out transactions. This creates the conditions for the order execution at the best price that fits the system.
The main difference between ECN and STP brokers is that ECN brokers allow you to view information not only about your operations but also about open orders of other market participants. Thanks to this their clients can determine a market liquidity.
FOREX brokers usually don’t try to trade against any trader. They just try to work on themselves to keep the business. Large brokers help to start trading, but after the order placing every man for himself.