Forex Trading & Explanation of a Forex Broker
Explanation of a Forex Broker
Forex Trading with the right forex broker is critical to success in the international currency markets. As a currency investor, you may have specific platforms, tools, or research needs that should be met. Understanding your investment style can help determine which FX broker may serve as the best forex broker for you.
What is Forex Broker?
A forex broker, also known as a retail forex broker, or currency trading broker, in modern financial and commercial trading means an intermediary who buys and sells a particular asset or assets for a commission.
Forex brokers are firms that provide currency traders with access to a trading platform that allows them to buy and sell foreign currencies. Currency traders use these brokers to access the 24-hour currency market.
There are two main types of forex brokers:
- Dealing Desks (DD)
- No Dealing Desks (NDD)
Dealing Desks (DD)
Dealing Desk brokers are also called Market Makers. A market maker helps to create a market for investors to buy or sell securities. Market makers are typically large banks or financial institutions.akers.
Market makers provide both a sell and buy quote, which means that they are filling both buy and sell orders of their clients; they are indifferent to the decisions of an individual trader.
No Dealing Desks (NDD)
As the name suggests, No Dealing Desk (NDD) brokers do NOT pass their clients’ orders through a Dealing Desk. This means that they do not take the other side of their clients’ trade as they simply link two parties together.
No Dealing Desk brokers can either be STP or STP+ECN.
STP brokers or Straight Through Processing brokers, is the name given to brokers that, when upon receipt of a client order, will pass on the orders directly to their liquidity provider.
Liquidity providers can include a Bank, a Hedge Fund, Investment corporations or another broker and as such no intermediary in the order will be involved – in other words the STP broker will not be filtering the orders through a Dealing Desk. The absence of a Dealing Desk intervention is what makes the broker’s electronic trading platform STP.
STP brokers benefit from having several liquidity providers as an increase in the number of providers in the system means the better the fills for the client. A large number of STP brokers will use banks, which trade on the Interbank market (the top-level foreign exchange market where banks exchange different currencies) as their liquidity providers.
The Difference Between Regulated And Unregulated Forex Brokers
This topic is a very important subject, knowing the difference between REGULATED and UNREGULATED brokers is crucial when investing in any financial market. This is something that not all investors investing their capital take into account. Majority of investors do not actually know if they are dealing with a Regulated Broker or a Unregulated Broker within the Foreign Exchange Market, this news is quiet somewhat disturbing. However, since Regulated is a process of which seeks to maintain and ensure fair and ethical behaviour in Trade. At the most basic level, it is a fact that Regulated Brokers have to operate in a manner that complies with the Regulations set out by Forex Regulators. However, Unregulated Brokers are not so obliged.
A Regulated Brokerage has to be Licenced and Registered within the country where the business has its base. By being Registered, Regulated Brokers must meet standards of Quality Control specified by the Forex Authority for that country and this, in effect, means that standards of Quality Control will be met.
The Unregulated Brokerages are in fact not Licenced nor Registered at all, which means they do not need to obey nor apply National Standards of Quality Control. This is a key differential in distinguishing difference between Regulated and Unregulated Brokers. Many questions may arise from this matter., such as ‘what does this involve?’. This can be simply explained.
Regulated Brokerages are audited on a regular basis and their business practices are subject to precise regulated scrutiny. In this way they are forced to follow standards and rules set out by their National Forex Regulatory Authority.
An example of this Regulated Forex Brokers are obliged to keep available sufficient funds to return to their clients if the Brokerage business become Bankrupt.
Unregulated Brokerages, who are not subject to regular audit and appraisals are not bound to do this. As a result, many investors lost huge amounts of money, not from losing trades but because Brokerage Businesses failed and fell Bankrupt.
Below is a short list of Licenced, Registered and Regulated Brokerages:
Important factors of choosing a Forex Broker
Choosing which forex broker to trade with can be a very overwhelming task especially if you don’t know what you should be looking for.
Below are 9 Factors to consider when choosing a Forex Broker.
- Ensure that broker is regulated
Regulation is a very critical factor that many people usually overlook when choosing an online forex broker. Proper regulation helps to ensure that the forex broker is well capitalized in the unfortunate event of a trading loss. It also ensure that the broker maintains standard practices as well as keep your money safe.
- Ensure that your data security is guaranteed
You will be required to submit very important financial and personal data when opening an account with an online forex broker. For instance, you will be required to submit copies of your utility bills, passport as well as your credit card numbers and bank account information.
If the online broker has not integrated proper security features, then your personal financial information can be stolen, trading disrupted and you will be also at risk of identity theft. It is therefore very important to conduct due diligence to ensure that the broker uses excellent security features.
- Good trade execution
If you want to get the best deal, then you must choose a broker who employs good trade execution practices. This will ensure that your trades are actually filled at the best market rates and also in a timely manner. Basically, there are two types of brokers that you can choose from. They include those with dealing desks and those who pass clients orders to the interbank market. For instance, if you choose dealing desk brokers, then the broker will be your direct counterparty meaning that they will make loss from your trade when it makes any gains and vice versa.
- Consider area of product coverage
Unlike the past where you could only trade currency, nowadays brokers are allowed to trade in over capital market via a single forex account. It is therefore very important to choose a broker who offers broad coverage such as venturing in stock indices, precious metals, commodities, Bitcoin, bonds among many other, to increase your chances of making profits from your hard earned money.
- Consider trading costs
Trading costs are quite expensive and can have a huge impact on your overall profitably as a trader. This factor is specifically important for high volume traders. Quality does not have to be expensive. Take your time and search for an online broker who is committed to offering quality services but at a fee that you can comfortably afford. However, you should not compromise the quality of service just because you want to save money. Sometimes cheap can end up being expensive.
- Consider trading platform
When choosing a trading platform, it is very important to choose one that has powerful features that are easy to use. It needs to have everything that you need to meet your trading needs. Most reputable online trading brokers usually offer demo accounts to give you a taste of what you should expect when you finally sign up for the real account.
Before you make your final decision, take your time and test the demo account to see if it will meet your trading needs. There are many online trading platforms that you can choose from including social trading, web-based trading, mobile trading and Meta Trader.
- Consider trading style
The trading style that you implement will determine the type of forex broker that you will attract. For instance, if you are a short time trader, it is important to choose a broker who provides currenex account and also allows scalping.
On the other hand, if you are a long-term trader, you will be less concerned with trade execution speed. However, you will more interested in overnight interest rates that your broker offers. This means that you need to pay close attention to the broker’s oversight policies and rates before you make your final decision.
- Quality of customer service
It is very important to choose an online forex broker who offered quality customer service to all clients. Quality customer care services will help make things easy when it comes to opening new accounts, helping you understand how forex trading works and also in helping you choose the right trading software. Choose online forex broker who offers excellent customer service to all customers.
- Consider trading tools
Another crucial factor to consider when choosing online trading broker is educational materials and trading tools that the broker provides. Many reputable online brokers usually provide educational materials including videos, article, webinars, e-courses, and seminars at no extra charge.
However, the quality of these materials usually varies depending on the broker that you choose. It is therefore very important to choose a trader who offers quality trading tools and educational materials to all clients.
IC Markets: World’s largest True ECN
Finding the best forex broker for your needs takes some research. Hundreds of online brokerage firms now compete for your account, so plenty exist to choose from.
IC Markets is one of the world’s only True ECN forex brokers providing trading solutions for active day traders and scalpers as well as traders that are new to the forex market. IC Markets offers its clients cutting edge trading platforms, low latency connectivity and superior liquidity.
IC Markets is revolutionizing online forex trading online traders are now able to gain access to pricing and liquidity previously only available to investment banks and high net worth individuals.
IC Markets management team have significant experience in the Forex, CFD and Equity markets in Asia, Europe and North America. It is this experience that has enabled IC Markets to select the best possible technology solutions and hand pick the best liquidity available in the market.
Why to choose IC Markets?
There is many important factors to choose IC Markets to start a professional Forex trading. We assembled all important factors that meet the professional trading requirements in IC Markets.
- Faster Execution
IC Markets utilises enterprise grade hardware on trade servers in the NY4 & LD5 data centre in New York & London respectively. IC Markets trader servers are collocated with our ECN engine and liquidity providers in these data centres. Dedicated fibre optic cross connects to IC Markets ECN and liquidity providers ensures the lowest latency and fastest possible trade execution for clients.
- Lower Spreads
IC Markets provide traders with the lowest spreads possible during all market conditions. IC Markets invested heavily in technology and establishing strong relationships with the largest and most reliable liquidity providers. They are constantly adding additional liquidity to True ECN trading environment in order bring traders the best possible forex trading conditions.
IC Markets is regulated by the Australian Securities and Investment Commission (ASIC) and meets strict capital requirements. IC Markets client funds are held in segregated client trust accounts with top Australian banks. IC Markets does not use these funds for any operational expenses or purposes.
- Advanced trading tools and platforms
MetaTrader 4, MetaTrader 5, and cTrader are 3 of the best trading platforms available today. IC Markets has revolutionised forex trading by giving traders direct access to True ECN trading environment using any of these 3 popular trading platforms.
Trading tools such as one click trade module, market depth, spread monitor, trade risk calculator, and advanced order types previously not available on MetaTrader 4 has been added to make trading experience better.
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