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A broker is a financial intermediary in our operations, ie, is the intermediary between buyers and sellers. Each intermediary broker will take a commission. The brokers must meet regulatory legislation in the country in which they reside, in Spain the body that sets the rules is the CNMV. But many brokers are based in the USA or England where regulatory bodies are the NFA, CFTC (in the U.S.) and the FSA (in England).
There are mainly two large groups of Brokers, The Dealing Desk and No Dealing Desk:
1) DD Brokers (Dealing Desk)
The Dealing Desk brokers are those that give us a counterpart to our operations and are therefore operating table. Therefore exercise of market where we can buy and sell
1.1) Brokers Market Maker
The brokers "Market Maker" feature to make themselves counterpart to our operations. This means that if we buy a lot of Eur / Jpy 100.60 our broker to sell us a lot to have desired price regardless of whether the market there is someone willing to sell us a lot at that price. For this reason this type of brokers that give us counterpart, they are called Market Makers.
Such brokers make profits by the difference in the sale price and purchase. A difference is called the spread and it is supposed that it is fixed at all times.
Therefore, a market maker is a broker organization, either bank or brokerage company that is willing at all times to give consideration to the purchase price and sale set for our transaction is complete.
Advantages and disadvantages of the Market Maker brokers (or Market Maker):
Such brokers often offer attractive platforms with many trading tools, real-time graphics, and shows the economic news.
Generally require less capital for a new account.
The market maker brokers have the disadvantage of giving consideration to all its customers may incur losses for the difference between buying and selling prices. This conflict of interest between their benefit and ours can lead them to work against customers "sweeping" the stops or distorting the quote slightly pairs. However this is not something you do all brokers, since statistically obtained as 95% of traders incur losses benefits, but must be taken into account.
2) Brokers NDD (No Dealing Desk)
They are those brokers that act solely as an intermediary between operations in the forex market. Such brokers typically require more capital for a new account. There are two types of brokers NDD:
2.1) Brokers ECN (Electronic Communication Network)
The ECN (Electronic Communication Network) brokers available to its customers the best prices for buying and selling offered by all market participants to which they are connected. These market participants may be banks, traders or even Market Maker or Market Maker.
That is why when there is much in the market transaction volume, such as in the European opening, in a currency pair majors spreads are very low and can get closer to 0, according to the broker with which we operate.
The ECN brokers, as well as the Market Maker, also get benefits of spread, but unlike them can not incur losses from operations conducted by their clients because they simply do not give consideration and not participating in the market. Therefore have no incentive to work against in customers.
Advantages and disadvantages of ECN brokers
An ECN broker we usually offer better spreads as prices are offered by many sources. Also as involved in the market, getting us no counterpart operate against us. However, at times the market price may be more volatile.
Some ECN brokers do not have many options and tools in their platforms as we offer other brokers.
2.2) NDD Brokers - STP (Straight Through Process)
The brokers STP (Straight Through Process) operations connected with our liquidity providers. These providers are usually banks, brokers or other financial institutions.
Like the ECN Brokers profit from a small commission charged and included in the spread so neither have interest in going against us.
The main difference between STP and ECN brokers ECN brokers is that in addition to connecting our operations with those of its liquidity providers, create a network in which all traders can trade with each other.
Brokers "Hybrid"
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Today many brokers that are DD and NDD brokers at once. For example it may be market makers for micro accounts while ECN are for standard accounts.
This can confuse us, so it is important to assess the conditions offered by each broker. We can use the internet to read reviews and other people's experiences with each broker, in order to make better choices.
In Rankia is a page in which they evaluated the major brokers.
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