Selecting a top-quality forex trading broker is a critical factor in becoming a successful forex trader. A forex broker must be reputable and capable since this is the person or business that facilitates interaction with the forex market.
Ensure that the broker is recommended by many clients who have shared positive experiences with, otherwise you’re taking a chance with using a forex broker that might not be worthy of business.
If you don’t have a quality forex broker then you can’t take advantage of the profitable trading opportunities.
The majority of forex traders these days use an all-online forex broker. It is generally considered as a good thing, however there are several online forex brokers who are not on an equal level of service and technical capability compared to other online brokers.
Therefore, you need to ensure that you have thoroughly done your research by listing pros and cons.
It is highly important that your forex broker has the capability to provide service whenever the market is open. Not having technological means can be extremely risky especially when periodic forex trading platform “crashes”, which usually takes place during highly volatile market conditions. Some of the best trading setups form in quick moving, volatile market conditions, so you should be prepared at all times.
The best forex broker will ensure you that they have the technological capability to be online during all market conditions. These brokers also ensure you that they offer excellent customer service.
Brokers should attentive, friendly and helpful at all times. Do not settle for anything less. Remember to do your research and speak to other brokers ahead of making a decision.
Types of Forex Brokers
Forex brokers range from illegal trading floors to international-acclaimed brokers that have direct access to the market.
Below is a list which will simplify and direct you towards several types of forex brokers:
Dealing desk forex brokers (DD)
Often known as the “market maker”, this means they can quote their own prices and would usually trade against your positions. In turn, your losses are gains for the broker or one of the broker’s clients. Most of the trades are done using the broker’s own liquidity.
These brokers make profit on the spread, which is the difference between buy and sell prices for a currency, and will not receive commissions.
As a market maker, these brokers set their own fixed price quotes and at times the said prices can differ from actual market prices. Traders are often not passed onto the interbank market to be paid.
No dealing desk forex brokers (NDD)
No dealing desk brokers allow traders to buy directly through the interbank market, which means the broker connects two parties on the interbank market that want to make opposing trades. Trades are processed through the broker’s electronic platform.
There are two major types of NDD traders which are the STP and STP + ECN brokers.
STP means Straight Through Processing which means that the broker offers digital trading by the interbank market without interfering with trades.
Electronic Communication Network or ECN, means that the broker provides real-time order book data, which raises the transparency of trading.
Retail forex brokers (market makers)
These are the most commonly used, especially by rookie traders. Accounts can be created online and deposits as small as $100 can be made.
Be advised to look around and determine what each broker offers. Find out factors like live support or instant buy/sell into the market since some might have a delay depending on their market access.
Institutional forex brokers (market makers and non-market makers)
Institutional forex brokers (market makers) use a sales angle that has more direct access to the market. However, this requires a big amount of capital in order to begin trading. This broker can be perfect for rookies but due to the large capital requirement, they are usually put off until the person obtains a large amount of cash.
Institutional forex brokers (non-market makers) can only be accessed if you are working in a bank or the likes of it. A huge number of international banks trade in this form where access is direct to the interbank market.
Spreadbetters are currently only legal in selected countries, which does not include the United States. Profit is made on their winnings and they make money on the spread between two currencies. They also offer the ability to trade other products such as stocks, indices or commodities.