With such a big variety of Forex brokers, it is harsh to distinguish each of them. Besides, there are many factors and approaches into such a distinguishment. However, currently, financial trading experts have one unified manner for classifying Forex brokers. This manner has now established various ordinary types of Forex brokers. Knowing each of them is significant not only because this is part of your Forex education, but also because these types will clarify you everything as to trading at all. So let`s discuss all the various types of Forex brokers.
The common classification for various types of Forex brokers:
The ordinary way for classifying the different Forex brokers distinguish the following types:
DD – Dealing Desk
A dealing desk broker is a market maker. Market makers typically offer fixed spreads and may elect to quote above or below actual market prices at any time. Market makers are always the counterparty of the trader, who doesn’t trade directly with the liquidity providers. Market makers get paid through the spreads, and they usually also take the opposite trades of their clients prior to covering themselves (or not) with regards to the liquidity providers.
NDD – No Dealing Desk
An NDD forex broker provides direct access to the interbank market; it can be an STP or STP+ECN broker (see below for STP and ECN broker definitions). With a genuine No Dealing Desk broker, there is no requoting of prices, which means that you can trade during economic announcements without any restrictions. The spreads offered are lower, but they are not fixed, so they can increase significantly when volatility is increasing during major economic announcements. An NDD broker can either charge a commission on each trade or choose to increase the spread.
STP – Straight Through Processing
In STP mode, transactions are fully computerised and are immediately processed on the interbank market without any broker intervention.
ECN – Electronic Communication Network
ECN brokers provide and display real-time order book information (featuring the orders that were processed and the prices offered by banks on the interbank market). They thereby improve market transparency by providing information to all market participants. ECN brokers usually make their money by charging a commission on the traded volume. With ECN brokers, all transactions are directly processed on the interbank market in No Dealing Desk mode.
MTF (Multilateral Trading Facilities)
An MTF exchange ensures that buyers and sellers of financial instruments can come together according to non-discretionary rules. An MTF is not a regulated exchange, but it operates under the same rules. MTF rules are transparent and ensure a fair trading system. The broker guarantees price efficiency and the clearing of transactions. Compared to a traditional exchange, a multilateral trading facility provides greater discretion, faster order execution speed and reduced brokerage fees.
Also, there are other ways for Forex broker type classification. Here they are:
- type of regulation
- trading instrument availability
- brand belonging!