There is a global network where the biggest banks in the world, financial institutions, and large Forex Broker Firm trades currencies. This network called Interbank.
As a retail trader, we can not access directly to the Interbank. This is where our Forex Broker can be utilized.
A Forex Broker is a firm that offers a trader access to a platform for which a retailer can buy and sell currencies.
Basically, the Broker acts as a middle man between the retail trader and the Interbank traders.
There are 3 types of a Forex Broker,
A Market Maker, STP (Straight Through Processing) and an ECN (Electronic Communication Network)
A Market Maker is a Forex Broker who creates its own prices for Bid and Ask Price using their own system (Dealing Desk). Even Banks and financial institutions are known to be a Market Maker. They continuously buy and sell currency at the current quoted price in the Interbank. In order to do that, they take the opposite trade of the retailers (called hedging). In simpler terms, whenever a retail trader buys, they sell and vice versa. Generally, a Market Maker is known as a counter trader of a retailer since they are trading against them. A Market Maker generates profit from the spread as they act as a liquidity provider.
STP Straight Through Processing is also a type of Forex Broker where they let retail traders access directly to the interbank quoted price without Dealing Desk intervention (Non-Dealing Desk). In summary, they do not manipulate prices in order to generate profit. Usually, STP Brokers generate profits from commissions agreed between the broker and the retail trader.
ECN similar to STP, Electronic Communication Network is the Broker type for which they let retail traders access a centralized network or technology where requested orders of traders matched automatically. They offer a very low spread as low as 0.0 pips and these Brokers gain profit from a fixed commission which is agreed between the trader and broker.
So what should you look for on a Good Forex Broker?
1. MAKE SURE THAT YOUR BROKER IS REGULATED. Look for your Forex Broker regulatory status. It should be regulated and licensed by at least 1 of these regulatory bodies:
Do not trade with a broker whose regulatory is non existent or only regulated by offshore regulatory bodies.
2. NO HIDDEN FEES. Check for broker's hidden fees especially during deposits and withdrawal. Some brokers may even charge inactivity fees.
3. LOW SPREAD. Spread is the difference between the bid and ask price. Almost all market maker broker generates profit with spread. So if you are trading with a market maker, check for a zero spread trading account. Or look for an STP or ECN type of broker to access a zero spread trading account.
4. FAST DEPOSIT AND WITHDRAWAL. This also one of a good points in looking for a good Forex Broker. Anyone likes to access their fund in no time. A broker with an instant deposit and withdrawal is the best.
5. FAST TRADE EXECUTION. One click trading is a fast way to request an order. Your broker must execute your trade in just a millisecond.
6. MT4 PLATFORM SUPPORTED. MT4 or MetaTrader 4 is the best platform used in the Forex market due to a wide variety of trading tools that you can access for free.
SHOULD I NOT TRADE WITH A MARKET MAKER?
You can trade with those 3 types of Forex Broker provided that they are regulated. A Market Maker offers many bonuses when you open an account. They even offer a No Deposit Bonus for which the profit that you'll gain can be withdrawn based on the terms agreed between the trader and broker. ECN and STP Brokers usually have a large minimum deposit typically from $100 to $500 compared to Market Maker which you can deposit for as low as $0 - $5.
DEMO VS LIVE ACCOUNT.
Demo Account simulates a real life trading experience with virtual money. This is extremely recommended for beginners to familiarize with the trading platform that traders used.
Live Account is a trading account for which you will fund with real money. This is recommended for experienced traders.
AND REMEMBER, TRADE AT YOUR OWN RISK!!! 🔥🔥🔥
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