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Chapter 38, Part I. Some Talk About Brokers. Page 4

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Here you can see that this is not a simple question to answer.

    Now, as an initial guide I will give you some information about types of brokers that exist in the current retail brokerage sphere. At the same time, you have to understand that we call as “brokers” those who in fact do not meet the definition of one. We just use this word to call them. In fact, a broker is a firm that acts on behalf of client and in their interests. Other words speaking – just execute clients’ trades. That is what happens on exchange markets. On the forex market there is a bit of a different story and there are a lot of retail companies that are call “brokers” but in fact they are dealers. A dealer is a company that acts on behalf of its own interest and places their own quotes. Clients, in fact have the right only to choose – make the trade or not. As a result this kind of “broker” in fact is a dealer which becomes the counterparty of your trades. But let’s proceed with the types - they are – Market makers, STP Brokers and ECN brokers:

    1. Market makers (sometimes they called as Dealing Desk).

    This is one of the most common types of brokers on the forex market. They are those who are not really brokers but are only “dealers” in fact. Since, as we already know, forex is an over-the-counter market, it is naive to think that you can get access to the overall quotes of big corporations and banks with your account having just 2000 USD or less. As a rule you will get access to just a small part of it that will be limited with some banks and retail brokers at best. More probable is that your view of the market will be limited to seeing the quotes of your market maker. Since there is no central exchange on forex that gathers all quotes, for many retail traders, a market maker (dealing desk) IS the market. You see only its quotes and take (or not) trades by its quotes. But do not be too scared – currently competition between DD brokers is so tough that their quotes tend to be fairly close to real interbank and market quotes. This market maker becomes the counterparty of your trades. In fact, your trades may never transfer on to large market as they are.
    #1 Sive Morten, Dec 28, 2013
    Lasted edited by : Oct 15, 2016
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