Types of forex broker ecn stp mm

Posted by on Nov 6, 2012

By Fabiano Trevisiol


 Types of forex broker ecn, stp, market maker

 

What is a forex broker?

What are the differences between the various types of brokers, ecn, market maker, stp, no dealing desk?

 Always remember that to trade and operate in forex requires preparation, I encourage you to follow these lessons I suggest periodically developing a free forex course, carefully, about courses on this site you can request a free consultation or free forex course in the form of one-to-one coaching, also the forex course of non-directional method, which is a forex strategy that will allow you to make money from the forex market consistently 5% per month or even more. Also the non-directional course takes place in the form of one-to-one coaching.

 

Differences between the various types of brokers

 

The broker is the one topic that allows us to trade in the forex currency market.

Only large investment banks, liquidity providers, investment funds, central banks, all these subjects defined in slang “large traders” are real market access. Small and private customers, defined as “commercials” or “small traders” have no access to the forex market directly, but must provide a service provider which is the broker.

 The broker is then between us and the market and forward “in some cases” trading operations in real forex market.

Why in some cases?

Because depending on the type of broker there are cases and cases where this relay mechanism of our orders at the market actually happens or not.

The broker market maker

This type of broker may at its discretion decide, if he so wishes, submit the executions of the trader in the forex market or not.

Why? Because this broker can choose not to forward the client positions to the forex market trader, but keep them inside a fictitious market inside or cover up real market opening positions in the opposite direction. In this case then the broker earns from our losses. Market maker Brokers usually keep customers in the early days of operation and decide if these are potentially winning trader or losing trader. Divide the traders into two groups, that of winning trader, whose positions are forwarded to the market and the traders loser whose positions are not actually forward in real forex market. In this way, as already mentioned above will gain from trader’s losses, there is therefore a significant conflict of interest. There are also cases where the broker does everything, making fraudulent transactions in order to lose the trader and put him in trouble. In these cases we are exactly opposite to non-honest. In general, brokers market makers are to be avoided because of the conflict of interest that exists between us and the counterparty.

The Broker No Dealing Desk o Dealing Desk (NDD – DD)

The difference between these types of brokers is that the broker Dealing Desk (DD) have the right to refuse to accept our request to open position at the current price, proposing a different quote, usually in our disfavour, this process is called reqoute you. Brokers No Dealing Desk (NDD) instead guarantee that the position will always be accepted.

The broker ECN e STP

The ECN STP brokers are always No Dealing Desk (NDD), these types of brokers submit our position directly to market through automatic mechanisms and anonymity, which is not possible for the ultimate liquidity provider to know each order to which you refer. In this way you avoid situations of conflict of interest. The word STP means “Straight Throught Processing” while the word ECN stands for “Electronic Communications Network”. ECN brokers forward always positions directly to the market as STP but also offer direct access to information such as the current liquidity, volumes and more in General so I’m much more professional intermediaries.

Broker charge commission.

Brokers who charge commissions (usually the ECN) have much lower spreads and generally the cost spread + Commission is less than the average spread of an STP brokers or Market Maker. Failure to pay a Commission is not to scare you, but in my opinion it is a merit, first the broker is assured of a gain and it dismisses any interest conflicts, secondly the trader can see or request at the end of the month, the bank statement and see how much money he paid to the broker.

Spread fixed or variable.

The spread is the general mechanism that makes earn the broker. When we open a position in the forex market, it opens with a negative value equal to spread. The difference compared to the actual price quote and that with which we were put on the market is the gain of the broker.

There are two types of accounts, fixed spread or variable spreads.

The fixed spread accounts offer the same spread for each pair of currencies and forex instrument, always in any market condition the spread will always be equal.

In the accounts at variable spreads the spread depends on the liquidity, volatility and various market conditions.

I hope with this lesson to have clarified some fundamental concepts related to types of forex brokers and account types available, the basics that every trader should know.

It only remains for me to wish you a good trading and the appointment to the next lesson!

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