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!
