What is Forex Broker? How to choose a reputable Forex Broker

 If you are new to Forex , you must have heard of the term Broker, or Broker. Not only the Forex market, there are brokers on the stock or virtual currency side . Obviously, to be able to participate in trading in the Forex market, you need to go through a Forex Broker. So what is a Forex Broker, or who are they? A person, or an exchange, a company? In this article, let's learn about them.

What is Forex Broker?

Before there was a Forex Broker, people who wanted to trade in foreign currencies needed to have a large amount of money and a special relationship with a bank to buy foreign currency. Forex Broker will give you a way to connect to the banking network and buy a currency pair easily. Since Forex Brokers are brokers in the Forex market, they act on behalf of clients, acting as intermediaries between sellers and buyers.

What is forex broker ?

Where does the profit of Forex Broker come from?

Forex Brokers make money by taking “commissions” when you make trades. For each trade, the Broker will charge a fee per pip (which is the difference between two currencies in a currency pair), before they actually push the trade to the market.

In addition, when the market is trading at the buy price of xxx, the Forex Broker can offer you a little higher but not too big. If you close your trade immediately, the Forex Broker will profit between the “market price” and the price you paid them. This difference is called a spread .

Spread is a spread that shows the difference between the bid price; and the asking price of a particular transaction. The bid price is your price to sell a given currency; while the ask price is the price received to buy a currency. The difference between the bid and ask prices results in a change in the broker's spread.

You may be wondering why Forex Broker chooses such a small spread to make money. The simple answer is that most people don't mind the small pip difference when trading. Forex Broker will make money by allowing you to use leverage . When you use leverage, you can control a larger amount in the market than you have in your account. If you are trading 10:1, then you can control 1000 USD in the market with only 100 USD in your account.

This not only increases your chances of profit (or loss), but also makes each pip worth more, i.e. you pay a spread with more money.

In short, whether you win or lose in a trade, Forex Broker still makes a profit.

Or even professional Forex Brokers charge some other fee; especially customer service and support.

Example: Some brokers will give you Forex signals ; allow their traders to refer or enter orders accordingly. In some cases; professional traders will also find brokers that offer classes; and private webinars for those looking to improve their skills; and get more profit in your account. Perhaps these are only suitable for those who are just starting out in Forex trading.

In addition to providing customer support sessions; there are other brokers who make money from their trades through financial operations. There is one thing that you should keep in mind whenever you buy; or short a currency; you will all be charged a fee; Forex trading platforms also benefit from this.

Although this can actually be a bit complicated; but Forex brokers with larger orders will be paying interest in their real interbank market. Usually, your Forex broker will work with a liquidity provider; who will shop orders in relatively small quantities. This will further allow people to trade back and forth. The real interbank markets are made up of the largest banks globally; and none of them bother with these small transactions.

Classification of Brokers

Before delving into each type of Broker, I would like to introduce you to some commonly used terms to describe the types of Brokers available, to help you easily evaluate and recognize the type of broker you are dealing with. What kind of translation?

What kind of translation?

Dealing Desk

Is the type of broker that executes your order through the order receiving point and reports a predetermined Spread. Dealing Desk brokers profit from their pre-determined Spreads, and they also trade against orders & counterbalance clients.

These DD brokers are called Market Makers – price makers . They are really price makers, creating markets for customers, for example, when you want to place a sell order, they will buy, when you want to place a buy order, they will sell. Therefore, they always execute counterbalancing orders with customers, and because of this they "create the market" themselves.

Therefore, you will never see the true price of the market, and so it is an opportunity for these brokers to manipulate the market, make their own prices... to match their customers' orders.

No Dealing Desk

No Dealing Desk Broker will help your orders go directly to the interbank market without having to go through the dealing desk for quotes. Real NDD brokers, there will be no " requote " for your orders, and order matching & confirmation is very fast, without delay like DD broker. And what's more special is that it allows you to trade according to news, without restrictions.

NDD broker can either charge a commission (very low) and keep the spread of the interbank market, or increase the spread, no commission.

No Dealing Desk brokers include both types, both STP or ECN+STP.

STP — Straight Through Processing

STP Forex brokers means that these brokers will send customers' orders directly to the system of liquidity providers - such as banks - who also trade like customers on the interbank system - Interbank. Sometimes STP brokers have only one liquidity provider, but sometimes there are more. The more banks and liquidity in the system, the easier it is for a client's order to be matched at a better price.

But the important thing is that you can trade directly and really in the market without having to be interfered with by the broker.

ECN — Electronic Communications Network

ECN is similar to STP, but also allows your trading order to interact with the orders of other customers.

ECN Forex broker creates a market, where trading participants (such as banks, market makers, investors) trade reciprocally with each other, with very competitive bid/ask levels in the system. . Since the participants interact with each other in the system, very cheap prices are obtained, and all trading orders are actually executed between the parties. However, these brokers may also charge a commission on your trades (but very cheaply).

Sometimes STP brokers say they are also an ECN broker, but in reality, to be an ECN broker, their trading software must represent the Depth of the market (DOM). For example level I or level II, to help customers show their trading volume in the system, while allowing other customers to execute these orders.

With the ECN broker, you can see the liquidity and the orders executed in the market.