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Forex Brokers Guide – Forex Founders

 

 

What kinds of brokers are there?

 

The brokers operating on a spread are called market makers, also known as dealers or dealing desks. Their model is simple. They offer to sell a currency at a higher rate and to buy it at a lower rate.

 

The brokers charging a commission are either “Straight Through Processing” dealers (STP) or “Electronic Communication Network” brokers. STP brokers deal with traders on one side and liquidity providers on the other side. They will look for the best buying or selling rate for any particular currency operation that a trader wants to do, and they will then charge a commission on doing that operation. As traders do not see the other side of the operation (the buying and selling rates from the liquidity providers), they depend to a certain degree on the honesty of the broker concerned. This is one reason why regulating bodies exist to report on the activities of such brokers.

 

ECN brokers go a step further. They are at the same time “Straight Through Processing” dealers, but use networking facilities to pair off traders buying and selling operations with other traders, other brokers, banks or hedge funds. They also charge a commission for this service.