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People new to forex trading may be astonished to find that their forex broker could operate in some astounding ways. Actually, numerous firms offering foreign exchange trading services are not brokers in the usual sense at all.
Traditionally a broker would serve you as a client, placing your buy and sell orders for you through their dealing desk and charging commission (for equities trading transactions) or making their profit from the spread (the difference between bid and ask prices) for foreign exchange trading. In the past orders would be placed by telephone. Now they are placed online, with you in absolute control of your account.
But regular forex accounts require considerable capital. Generally the lowest deposit is anything from $10,000 to $50,000. Now that currency trading can be done from home, there are many new services springing up with lower deposit requirements, offering forex mini accounts. But their business model is not inevitably the same as traditional brokers, and this can have implications for you.
So nowadays, there are different types of companies that operate in unconventional ways in order to provide services to the smaller investor. Most of these do not have dealing desks of their own.
Forex NDD (No Dealing Desk)
Brokers without a dealing desk communicate with external liquidity providers to provide prices and match clients' trades. Because there is a range of liquidity providers, the real spread tends to be small but the broker can increase the spread to give themselves a better profit margin.
Forex ECN (Electronic Communications Network)
ECN brokers cater a marketplace where many market participants including financial institutions, market makers and regular traders can see to have their trades filled. Trades will be entered in the name of your ECN provider for anonymity. Spread is in general small but the ECN will frequently charge a matching fee per transaction.
Foreign Exchange Market Makers
When you have an account with a market maker, your trades are not being matched by third party providers but by the market maker themselves. This means that they take the opposite position and offer their prices to you, although of course these prices relate to the current price in the market. They will then offset their risk by taking an equivalent position to yours in an ECN or other environment.
Since they are not actually placing your order in the market, market makers are not brokers in the true sense of the word still most traders use the term currency trading broker loosely and include them. Others consider that the separation between market makers and bucket shops is not clarified and prefer to avoid them.
Forex Bucket Shops
Bucket shops work a bit like market makers but they do not offset their risk and may have very little connection to the real spot currency market. When you deal with a bucket shop you could be said to be betting against them. They take the other side of your trade and they profit by your loss. Like commercial bet takers, if you are profitable they tend not to want your business and will presumably close your account, returning your cash to you. They certainly won't provide you with additional services, like forex signals. Obviously, as with a forex signal service they would help you to win against themselves, so you can't expect such a suicidal behavior. So the best thing to do is to find a reliable forex signal provider.
Foreign Exchange Trading Systems - Read It Here
I have been trading Forex for a living for over 7 years now and have come across numerous Forex trading systems and methods. After many trials and errors I've come to the conclusion that simple is best, therefore I have reduced my trading into 3 categories.
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