3 Types of Forex Brokers and How They Can Help You

If you have been doing research, you may have decided on which approach you will plan to take when trading on the forex market. If you decide on a managed forex account, you have your reasons and potential benefits as well as challenges. Another dilemma will present when you have to choose the type of broker you are going to engage in your investment.

As a beginner, you should have heard of the two models if it is in your interest, the market makers and the ECN types. There is an additional one, and you will choose based on convenience. Here we elaborate on each of the three main types of forex brokers to guide you. They include:

1. Market Makers

As the name suggests, this type of brokers focuses on making the market better for their clients. They have opposing interests to those of a trader and will make profits when you get lost. The general belief is that market makers make the forex trading hostile for their clients by setting unfavorable rates. This is not always true since the best brokers as listed by ConnectFX.Org place a buy and sell price that runs concurrently.

Market makers mostly conduct trade internally, and they leverage on fixed spread gains profits. There is stiff competition in the industry and to lure clients, the rates must be reasonable. Market makers will help you execute the business in a jiffy; they also provide for flexible leverages among other advantages. It is essential to check on the risk management policy before committing to trade since the internal rates may vary from the interbank market due to several factors.

2. Electronic Communication Network (ECN) Broker

Unlike the market maker brokers which does trading internally, the ECN brokers expose one to the external environment. When you contract the ECN broker be ready to get more involved in the trade since their role is limited. They will link you to the counterparties in the interbank market. After that, you will have the power to make decisions regarding the best rates to trade and the currency to trade on.

Technically, the brokers will work solely in creating a platform for the buyer and the seller. The trade structure is conspicuously simple; however, the details will present the demon since several limitations follow that need shrewd expertise to overcome. Your orders can be rejected, or the broker issues a re-quote. You have to be very flexible and patient when dealing in this trade.

3. Straight Through Processing (STP) Brokers

Also known as direct market access brokers, they have been criticized as a marketing tool since they are the simplest to understand. This is not entirely true; they are more like the market makers in providing trader flexibility. The STP brokers will act as an intermediary between the trader and the interbank market. Connecting the traders to trade without influencing the rates.

They derive their share of profit by charging clients a fee on the execution of orders. In the model, the broker takes a keen interest in ensuring that the trader is winning in the market. On the downside, there can be a dynamic spread that alters your plans.