When trading in the Forex Market we soon realize how important it is to be trading with a decent broker. As many brokers and banks take the risk of some trades it is very important to pay attention to see if you are not being misled with execution. This is probably one of the best pages on this website, so I suggest toread with careful attention.
A few things explained.
What is ECN Broker?
ECN stands for Electronic Communications Network. This means that the broker gets from the market the best BID and ASK and simply transmits the order of the client to the market, not taking a position against him.
What is a Market Maker?
A Market Maker is a broker that takes the risk of its clients. This means that your order stay in the brokers book, if you lose the broker makes money, if you win the broker loses money. Market makers are not the preferred choice of many traders, but it doesn’t mean it is all that bad. You might even have a better execution then with a ECN broker. It really depends a lot on what the market maker is doing and how and how the trades are.
What is STP?
STP stands for Straight Through Processing. In this case the broker can either take the risk of your trade or send it to the market. But is a good option if you have an automatic system or other that requires fast execution, as it is all automatic and in theory they don’t have a dealing desk.
What is Dealing Desk, and what do they do?
A Dealing Desk are traders that verify your orders before execution. This is commonly used by market makers to trade against its clients. It is also true that they can help you. Sometimes you might want to put a trade of 50 lots when the market doesn’t have much liquidity, at this point the dealing desk will take the risk and send this order to the market in smaller trades protecting you from the risk of big slippage.
There are a growing number of brokers out there, so here are some of the things that you should look for before you open an account.
1- Regulation, where are they regulated? And if possible check their history (the best regulator is without doubt the FSA)
2- ECN and STP execution
3- Competitive Spreads
4- Deposit facilities (normally brokers that accept any kind of electronic money such as paypal, ewalet, etc, are not the best)
5- Location of servers
6- Customer service, how long does it take to process a withdrawal and what are the fees?