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Forex Brokers Role | Interbank Forex Market | ECN Brokers

Forex Brokers role in Interbank Forex Trading Market

Actually, Forex brokers are the intermediary between you and the “interbank”. If you don’t know what the interbank is, it’s a term that refers to networks of banks that trade with each other.

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Typically forex brokers will offer you a price from the banks that they have relationships with.

Therefore many forex brokers use multiple banks for pricing and they offer you the best one available.

Forex Brokers hold your Trading Account by which traders have access to the interbank Market through a Broker.

Now Anyone can open trading Account easily and they supply the charts we can use it for technical Analysis purpose.

Forex Broker Offer you Leverage

The ability to use forex leverage  comes with every account and it varies in the amount anywhere from 2000:1 to 1:1. A 10:1 leverage means that for every $1 in your account, you have $10 to trade.

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This is both good and bad as you can make exponential profits, but you can also suffer from exponential losses. The law requires forex brokers to disclose this, and they typically do in fine print.

So New traders typically get excited and blow their accounts out quickly if they jump in too fast.

Kinds of  Broker

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A. Dealing Desk(DD)

  • Usually, have fixed spreads.
  • Will take the opposite side of your trade.
  • Are not affected by news or Liquidity issues.
  • Are generally consider to have a fundamental “Conflict of interest “ with their accounts holders

B. Non-Dealing Desk (NDD)

  • More desired kind of Forex Brokers among traders.
  • They will route your trade directly into the Interbank market through “Liquidity providers”.
  • Liquidity providers are entities like Banks, Hedge Funds, and other Broker.

There are a few different Kinds of NDD.

  • Straight Through Processors – STP
  • Electronic Communication Network – ECN
  • Direct Market Access -DMA

     1.  Straight Through Processors – STP

  • An NDD Broker
  • They will initially take the opposite side of your trade and then pass position on to their liquidity providers banks and another broker.
  • If there is no immediate fill from liquidity providers, you might experience a re-quote and small delay getting into the market.
  1. Electronic Communication Network – ECN

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  • Different from STP- doesn’t get you in the interbank market the same way the STP does
  • Link you with others participants and other individual traders that are taking the opposite position you are.
  • A commission usually charged.
  • You get a good rate with no slippage or re-quotes.
  • The most favorite kind of broker
  • Similar to STP broker, but the difference is that instead of taking the opposite side of your trade and then passing their position to a Liquidity Provider. They will hook you up with the liquidity providers instantly.
  1. Direct Market Access -DMA
  • DMA Brokers only offer a 5 digit quote and only variable spreads
  • The spread comes directly from liquidity providers with a small increase in the charge.
  • No Commission is charged. They only price you pay 5 the spread.

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