Explanation of the Various Order Execution Types by Forex Brokers

The terms most sources you will find on the web use to categorize various types of Forex brokers include dealing desk, market makers, no-dealing desk, straight through processing, electronic communication networks, direct market access, introducing, and you could probably find another term for describing basic broker type. How to group these concepts in a meaningful way is the current problem.

Initially, you must
You must first understand who controls your market and who your trading counterparty is. Dealing desk brokers (DD) and no-dealing desk brokers are the two subcategories of FX brokers (NDD). As a DD broker, your market executes trades against you or acts as the counterparty to your trades. Due to their role as market representatives, DD brokers are often referred to as market makers (MM). Both the spreads and the transactions benefit them.

Since losers and unsuccessful traders bring in money for brokers, they prefer them. On the interbank market, brokers are compelled to hedge by winning traders on the other side, which raises their expenses and deters potential clients. Of course, reputable FX trading providers handle this professionally, but with certain more “exotic” brokers, you can be asked to close your account and depart if you achieve too much success.

NDD brokers transmit your orders to the “real” market, as opposed to DD brokers. The genuine forex market, also referred to as liquidity providers, is made up of a variety of banks, funds, and other institutional intermediaries (LPs). More LPs in the group result in better trading circumstances, including greater liquidity and cheaper spreads. The two primary subcategories of NDD brokers are STP and ECN. Electronic Communications Network and Straight Through Processing are both acronyms for the same idea.

We’ll start with ECN. A forex broker fxoro review joins to the market and obtains access to the network’s liquidity and other advantages without being aware of or engaging into any agreements with the other members of the group, which consists of LPs. The cost of joining and maintaining membership in such a network.

An ECN broker routes an order sent by a client out to the market and fills it from the LP with the best terms and price. In these transactions, the counterparty might be any other user on the network. Customers can take advantage of the level 2 depth of the market on their trading platforms due to the big number of members. New trading, scalping, and other specialized techniques are not a problem with ECN brokers.

STP brokers are comparable to ECN brokers; however, instead of joining pre-existing LP pools, they must negotiate separate agreements with each LP. The more LPs it has agreements with, the better for their clientele. It is important to keep in mind that not all STP brokers are the same. They disagree on who the counterparty to your trade is. Many STP brokers provide direct market access (DMA), which enables any LP to be the counterparty and the one with the best conditions. On the other side, certain STP brokers may carry out transactions against your wishes (they will carry out your order) and then hedge in the real LPs market to eliminate the risk.

Most of the terms pertaining to various execution strategies for Forex brokers have already been defined. The introducing broker is still up for discussion (IB). Nothing more than a current broker trying to attract new clients by extending a hand. There are IBs for DD and NDD brokers.

Some Businesses Clearly
It can often be difficult to ascertain the particular kind of order execution that a different Forex broker is offering, even while some businesses clearly identify as one type of broker and build their marketing strategies on their advantages. For instance, the following information can assist you in choosing the right broker: Only DMA and ECN brokers offer Level 2 quotations; ECN firms charge trading commissions while others largely earn from widening spreads; ECN and DMA brokers always offer changeable spreads; etc. Many brokers also use a hybrid approach to business, for example, providing DD execution for Micro and Mini accounts while providing NDD solutions for Standard accounts.

As a result, it may not always be the most cost-effective choice for you. Brokers represent themselves as free brokers, but in reality, you pay the larger spread as a commission. ECN brokers, on the other hand, will charge commissions for each trade but will just give you the spread’s raw value without any markup. While the majority of retail clients may do just well with DD brokers, heavier traders and those that trade in higher volumes may consider using ECN brokers. Naturally, there are other considerations to ponder when choosing a broker. I suggest that you search and compare forex brokers, read some reviews of forex brokers, and find forex brokers before making a decision.

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