The author is an expert in the field of multi-asset trading.
Your Quick Guide to Retail Forex Brokers
If you are new to the forex market, navigating the various types of retail brokers may seem like a daunting task. Choosing a broker that is best suited for you is one of the most important steps before entering the largest financial market in the world. Who you choose to trade with can have a big impact on the quality of service you receive as well as trade charges and variable spreads. Fortunately deciding on which type of retail forex broker to choose is not so complicated if you follow this short guide.
For starters, retail forex brokers are divided into two general types:
Dealing Desk Brokers, sometimes called “Market Makers”
No Dealing Desk Brokers, who are further divided into two subcategories:
Straight Through Processing (STP)
Electronic Communication Network (ECN)
Retail Forex Broker Types Explained
Dealing Desk Brokers
Dealing desk brokers are known as market makers and act as the counter-party to a client’s trade. Market makers take the opposite side of any trade (whether buy or sell) and most orders are filled by the broker itself, rarely reaching the interbank market. These brokers offer fixed spreads and set bid & ask prices at which they are willing to buy and sell, which are usually higher than the real market at any given time. When trading with a dealing desk broker a trader doesn’t deal with liquidity providers and is usually confined to the broker’s own liquidity pool. Market makers earn their money form the spread between buy and sell prices.
Moreover, a dealing desk broker’s clients aren’t directly quoted interbank prices, although they are usually close to interbank prices.
No Dealing Desk Brokers
A No Dealing Desk broker provides direct access to the interbank, and acts as a bridge between client and liquidity provider. This type is further divided into ‘Straight Through Processing (STP)’ and ‘Electronic Communication Network (ECN)’ brokers. A NDD broker doesn’t requote, and prices come directly from liquidity providers. You can trade during economic events without any limitations. These brokers offer low spreads but they are not fixed. Therefore, spreads may increase strongly during volatile periods upon any economic data releases or events. They can also impose commission on every transaction they facilitate.
Straight Through Processing
Straight through processing brokers have an automated dealing process directly with the interbank without broker interfere. The brokers with STP have a system that can direct the clients to the liquidity providers who have access to the interbank market.
Electronic Communication Network
Electronic communication network brokers offer a direct interaction with other clients. It could be banks, institutions, hedging funds, or even other individual brokers trading with each other in order to get the best prices. This broker gets a small commission for each transaction.
Now that you know about the different types of retail forex brokers, you can make a more informed decision when choosing who to trade with.
Equiti is a No-Dealing Desk (NDD) broker, effectively being a price aggregator. We simply take the best available bid and best ask prices from our liquidity providers and stream them directly to your platform. The NDD offering ensures prices are market-driven and always equitable.
Our proprietary ECN (Electronic Communication Network) technology integrates directly with many of the top liquidity providers. This means you have access to tighter spreads and faster execution, minimal slippage and accurate tick data.