As you have undergone the basic ideas of Forex, you are going to learn some more advanced system of Forex here. We went through the pretty basic things in the previous article. Here, we will understand some more advanced ideas of Forex trading.
Forex market is larger than the stock market. So, it is very common to have different kinds of brokers in Forex. It is like a restaurant where you first see the menu and place your order. Here in Forex, brokers are the menu that you have to see to place your order for food, that is the trade, to eat, here to make a profit.
Forex brokers are divided into two categories.
- No dealing Desk or NDD
- Dealing Desk
No dealing desk or NDD is divided into two categories,
- Straight Through Processing (STP)
- Electronic Communication Network + Straight Through Processing (ECN+STP)
Here is a chart to show you the types of brokers in Forex.
Figure: Broker Types
Dealing Desk Broker
This type of broker is the best in Forex market. They are also called the Market makers. They fill up the order of both sell and buy of the customer. The clients can trade in the market, that is created by the market makers and they often take the other side of the trade of a client. When you are trading in market makers’ market, you will not see the interest of the interbank, but they are moreover same offered by your Dealing Desk broker.
Desk Dealing brokers have many risk management policies. So, for your trade, if you want to minimize your risk, trade in the market with your DD brokers.
No Dealing Desk Broker: It is the opposite of the dealing Desk broker. The DD take your order and often take the other side of your forex trading order. But, non-dealing desk brokers will not pass your order. They will simply establish a linkage for your trade with other parties. They will not take the other part of your trade.
NDD is divided into two categories. They are-
- STP Straight Through Processing: This type of broker has an STP system. This system establishes a direct connection with the orders of the clients with many liquidity providers. These liquidity providers have access to the interbank, which means, they can quote their own bid and currency price.
Suppose you place an order through your NDD broker who has an STP system. Your broker will establish a connection with the liquidity providers who have access to the interbank. The best bid or ask price will be automatically selected by this STP system and you can know your best bid or ask price to make a profit.
- Electronic Communication Network + Straight Through Processing: This type of broker enables the client’s order to communicate with the other orders in the ECN. In this market, the broker does not show you the best price of the bid or ask. You compete with the other traders in the market by giving your bid and ask price. You can also see the real condition of the market in ECN broker trading.
These are the types of brokers in the Forex. As you go through the understanding of Forex from beginner to advanced level, you can place your order to your understanding and make a profit.