Many people enter the forex trading arena without considering the importance of selecting a reliable and trustworthy broker. A good forex broker can be the difference between success or failure and unfortunately, new traders are unaware of the crucial differences between forex brokers. Of major concern is that the forex industry is not centrally regulated such as stock exchanges so this opens the door for brokers to be unfair with their clients.
The main difference that you will see between forex brokers is whether they are a dealing desk or non dealing desk broker. A dealing desk broker makes money from the spreads and by trading against its clients by taking the other side of the trade. This type of Forex broker is generally called a Market Maker.
Non Dealing Desk Forex brokers do not take the other side of the trade but instead provide access to the interbank market. With a legitimate broker of this type, there should be no re-quotes and no extra pausing when waiting for the order confirmation. These brokers will either charge a commission while keeping the spreads extremely tight or choose to increase the spread and make your forex trading commission free.
There are also two other types of brokers. Straight Through Processing brokers that send orders directly from clients to the liquidity providers/banks which trade on the Interbank; and Electronic Communications Network brokers which allow client orders to interact with other client orders thus creating a marketplace where all participants, including banks, market makers and independent traders, trade against each other by sending competing bids and offers into the system. Both these types of brokers can be considered No Dealing Desk.
Of these types of brokers, stay away from the Dealing Desk Market Makers. They do not have your best interest in mind. Why would they, after all, they need you to lose in order to make money. Many entice new clients with extremely narrow spreads and even offer account deposit bonuses much like online casinos do. But when it comes down to it, they have every reason to make trading difficult for you so you lose with re-quotes and stop hunting. Forex trading is difficult enough as it is, the last thing you need is your broker to make it tougher. Choose a no dealing desk broker so that you don't need to worry about being cheated and focus on the task at hand, forex trading!
