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Are You Working With A Real Currency Trading Broker And Is That Broker Working For You ?
People new to currency trading may be dumbfounded to find that their forex broker may operate in some surprising ways. In fact, numerous companies offering currency trading services are not brokers in the classical sense at all.
Traditionally a broker would work for you as a client, placing your buy and sell orders for you through their dealing desk and charging commission (for stock trading transactions) or making their money from the spread (the difference between bid and ask prices) for forex trading. At one time orders would be placed by telephone. Now they are placed online, with you in total control of your account.
But normal forex accounts require significant capital. Normally the minimum deposit is anything from $10,000 to $50,000. Now that forex trading can be done from home, there are many new companies springing up with lower deposit limits, offering forex mini accounts. But their business model is not necessarily the same as traditional brokers, and this can have implications for you.
So these days, there are other types of companies that operate in different ways in order to provide services to the smaller investor. Most of these do not have dealing desks of their own.
Forex NDD (No Dealing Desk)
Brokers without a dealing desk communicate with third party liquidity providers to ensure prices and match clients' trades. Because there is a range of liquidity providers, the real spread tends to be small but the broker may expand the spread to give themselves a reasonable profit margin.
Forex ECN (Electronic Communications Network)
ECN brokers provide a marketplace where many market users including banks, market makers and regular traders can see to have their trades executed. Orders will be entered in the name of your ECN provider for anonymity. Spread is generally small but the ECN will frequently charge a matching fee per trade.
Forex Market Makers
When you have an account with a market maker, your trades are not being matched by external providers but by the market maker themselves. This means that they take the opposite position and offer their prices to you, although of course these prices relate to the current price in the market. They will then cover their risk by taking an equivalent position to yours in an ECN or other environment.
Since they are not actually placing your order in the market, market makers are not brokers in the true sense of the word albeit most traders use the term forex broker loosely and include them. Others believe that the difference between market makers and bucket shops is not clear and prefer to avoid them.
Forex Bucket Shops
Bucket shops work a little like market makers but they do not offset their risk and can have very little connection to the real spot foreign exchange market. When you deal with a bucket shop you could be said to be betting against them. They oppose your trade and they profit by your loss. Like commercial bet takers, if you are successful they tend not to want your business and will probably close your account, returning your funds to you. They certainly won't provide you with additional assistance, like forex signals. Obviously, as with a forex signal service they would help you to win against themselves, so you can't expect such a suicidal behavior. So the best thing to do is to find a reliable forex signal provider.
Are You Working With A Real Currency Trading Broker And Is That Broker Working For You ?
People new to foreign exchange trading may be surprised to find that their forex broker may operate in some surprising ways. In fact, some companies offering forex trading services are not brokers in the traditional sense at all.
Forex Mini Account Trading: Why Is It Crucial For Individual Forex Traders
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Everybody starts out currency trading with hopes of having big returns and some of the publicity that you will see will make this sound almost inevitable. In fact currency trading is of course full of risk and many people get their fingers burnt.
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