Forex Brokers types
- Dealing and non-dealing desk
- ECN broker
- Floor Broker and Trader
- Offshore brokers
- STP broker
- Brokerage house company
There are 4 main types of forex brokers: market operators, market makers, small brokers, and kitchens. Let us examine them on by one.
This most reliable group includes big commercial banks, which are regulated according to bank laws and rules. However, to trade with such banks one will need bills of large amounts and keeping bigger multinational companies from the private investment. Minimal lot is approximately $1000000.
Market makers are financial, not numerous, enterprises that work with smaller broker companies and offer theoretical opportunities of forex trading to individuals whose trading capitals exceed $50000. They offer lower cost of forex market trading and as a rule have more reliable financial base and integrity. However, the minimal size of the bill ($50000) keeps them away from the main forex market traders.
Here are little broker's enterprises working with individuals' small capital, which is from hundreds up to several thousand dollars. Risks of carrying out of deals begin when these little broker enterprises clear orders of their clients and work with the dealer or a market-maker. As the minimal sizes of the bill - which the market-maker demands from these brokers - becomes larger, it often happens that the local broker merges capital from all the bills of their clients in one bill at a market-maker intended for a broker company. According to this system, the forex market trader makes the broker company's dealer to get the quotation on an input or an output from a position, and the dealer, in his part, to receive the quotation, influences a market-maker. As soon as the quotation reaches the forex market trader, he or she instructs the dealer about an input in a new position or an output from an existing position, and the dealer writes it down at respective regulation of the client's bill. As this is the most important moment of the deal, the dealer makes the respective bargain on his own bill at a market-maker.
Therefore, if the client's market inquiry or the deal goes well, the client gains benefit which is the gross profit from forex market trading minus spreads and commission fees. The broker company also gets its own respective benefit on the forex deal with their market-maker, which is the same as net profit that will be paid to the client plus their own commission and possibly a little spread. Lost in this deal, the market-maker who has put this money in a pocket, but has lost profit gross from the deal as a whole, got by this broker company. It is important to remember that some broker companies give the client spread bigger than they themselves get from a market-maker and that's another way of getting benefits on top of their commission. Certainly, they will never confess it. The spread can be twice as great. Of course, if the client's case turns out to be unsuccessful, the broker company suffers big loss from the client's bill and will have to pay a market-maker the pure loss after withdrawal of its broker payments and commission fee. In any case, the broker company still gets the commission and a little spread.
The scheme of "kitchen" works fine when somebody does not start to win all the time. Their founders know that many clients just lose their money. Moreover, the profit of "kitchen" is these clients' losses. Then "kitchen" is closed with the remnants of clients' money and about two months later appear under other name. The scheme usually works like that. They offer to teach you free of charge and help you learn how to trade in the forex market. They say this will easily bring you unbelievable profit in a short timeframe. They make you believe that 5% a month is quite achievable but only in case if you open the bill of $1000 at their company. As a rule, their teachers are fine non-professional forex market traders or people who are just inexperienced trading within the forex market. These lessons last for only several hours.
Sometimes the clients are taught with the help of programs "simulators" where any trader "is earning" about 1000% a week. The biggest part of these "students" are losing their deals from the very start, and every time they're sure that was a good lesson which will make their techniques irreproachable, and their following forex market trading will go successfully. Many of these clients run out of their deposits fast and leave the market, while ones that are more stubborn "add" money to their bills to receive another chance and to gain profit at last. At last, they lose all their money and leave with physical and financial damages. It is the "victory moment" for such firms as it is their bread and butter. They gain the biggest part of profit on losses of such deals, and many firms win from spreads or commission fees that they demand for these transactions.