In our last article, we looked at three main types of brokers working in the Forex market. However, knowing their varieties does not mean making the right choice. Therefore, today we will describe in more detail the principles of obtaining the profitability of these market participants and their benefits for the investor.
1. DD (Dealing Desk). This type of broker can rarely be of benefit to the trader, since, as described in the previous article, the broker plays against his client, earning income from the loss of his trade and hedging. And if a client becomes too “profitable” or “unprofitable” for such a broker, then there is a possibility that a dealer with a weaker reputation in the market will simply close the client’s access to his platform.
2. STP – brokers. Unlike the first type of brokers who work against their clients, this type of brokers conducts a different policy and earns not on speculation, but on a small “premium” on the spread. This scheme is implemented by a broker by adding a certain number of “pips” (the so-called unit, usually equal to 1-2 points) to the best bid price and, accordingly, by subtracting the same number of points from the bid price. It is this difference in the spread that is the broker’s earnings
3. ECN is a broker. The principle of profitability is somewhat similar to the second type discussed above, but the main difference between them is that, for ECN – broker, the only income is not the difference in spreads, but the fee that it establishes for the transaction. Such a broker provides a trading place for its clients, in which all clients can trade against each other, setting a certain price level within the system. ECN – the broker allows you to override the orders of other participants, because it allows customers to show the size of orders within the system.
Thus, the most successful choice for the trader is the ECN broker. After all, such brokers earn less than other dealers, working only on a commission, and, therefore, are interested in maximum transparency, speed of order execution and in winning their customers! STP brokers are also interested in maximum profitability, but may turn out to be “more expensive” for their clients. On the other hand, their advantage is that, playing on the spread, such brokers set their own prices, as well as provide their clients with additional trading services and anonymity.