An important decision when opening a Forex trading account involves picking a broker to handle your transactions. It’s a vital decision that directly impacts your success, but how do you choose between the thousands of brokers available on the market? First, you need to differentiate between the various types of brokers that operate in the Forex world. Second, you should understand how each of them affects the quality of the service you receive.
Let’s dive straight into it!
The Main Types Of Forex Brokers
Supposing you need to decide what type of Forex broker to use considering the services they provide, there are a couple of choices you can select from. Each has a special way to handle transactions and execute orders. Information about the main types of Forex brokers and their advantages and distinctions is listed below.
No Dealing Desk Forex Brokers
The NDD type of brokers lacks a dealing desk (as their name suggests). But the most significant benefit you get when you use one is that it offers the best composite quotes procured from a list of Forex quote providers that offer the No Dealing Desk broker liquidity in the market. How does the process work? The quote providers post their best markets with the No Dealing Desk broker, and then the broker performs transactions and completes orders in accordance with your needs. Most NDD brokers ask for a commission or widen the bid/offer spread to gain profit for the trades you execute.
Market Makers
These brokers offer you a two-sided market obtained from a specialist trader that works on behalf of the broker’s in-house dealing desk. When the price you set is dealt on, it takes the other side of the transaction from you by purchasing on your bid part or selling on your offer side of the established price. Their main goal is to secure a part of the spread and create enough volume for both parties to prevent accumulating risk with a professional counterparty. Sometimes, when the trade is large enough, it can decide to offset it, especially if it concludes that the market acts against it. Market markers can also add it to their trading book depending on the transaction’s size and market outlook.
Electronic Communications Network Brokers
They don’t usually have their own dealing desks, but they create an electronic trading platform where professional market-makers at banks, traders, and other Forex players can enter offers and bids. The greatest advantage these brokers offer is that traders can post prices while keeping their identities anonymous. These brokers are perfect when you don’t want to give away if you’re on the bid or offer.
PAMM Forex Brokers
They offer passive investment models, also known as percentage Allocation Management Module, which is a fund management system that asks the managing partner for an interest in the managed fund. You set up an account with Forex PAMM brokers when you want to generate a profitable trading history. Based on it, you can use the broker’s engine to reach other investors that have the funds but not the skills or time to trade, to join a fund, and gain profit after the trading cycle is completed.
Forex Broker Account Types
Alongside the above classification, you can also divide Forex brokers according to the accounts they allow you to set. A category is for the Forex demo accounts that use virtual money, so you don’t risk yours when trading. Another is for live Forex trading accounts funded with real money to get you real gains and losses.
Forex Demo Accounts – When you first join the Forex market, you set a demo account to test your trading plan for pros and cons and measure performance levels. It’s best first to create a demo account and only if you’re satisfied with the services’ quality to commit to a live one because it allows you to evaluate the brokerage without committing to actual funds. Demo accounts don’t ask for personal information because they’re practice accounts you use to test the market. Forex Demo accounts often limit the amount of funding (even if it’s virtual funding) and the time span you can use the account. After you get used to its features, you can switch to the live version.
Live Forex Trading Accounts – You can fund the average live Forex trading account with anywhere from $1 to whatever limit the broker establishes for client deposits. After you open and fund the live account with real money, you can initiate and liquidate trades in the market to grow your revenue. Depending on the account type and its capitalization, you can trade currency pairs in micro lots, mini lots, and full lots.
How Do Live Forex Trading Accounts Differ?
Each live trading account has unique features. Various Forex brokers offer different services and perks (some you’ll find helpful, some you won’t). When you contemplate whether to use a particular broker or not, get through their services and determine if they suit your goals. Here is a list of ways in which live Forex trading accounts tend to differ.
Initial deposit amount – the initial deposit is a fact to consider when opening a trading account. Some brokers offer special accounts for traders that make a substantial initial deposit. When you have a VIP account, you can access a more extensive list of features and services you don’t usually get with a standard account.
Dealing desk access – if you want directional, flow, and other market recommendations from experienced customer service dealers, you need access to a dealing desk. When you set an account with an ECN broker, you don’t get dealing desk access because you trade directly with its electronic platform. But when you use a market maker that takes the other side of trades, you can also access a dealing desk.
Trading platform – a user-friendly trading platform is of vital importance because it impacts your trading capacity and speed. Most brokers use MetaTrader 4 or 5, but some also have their own trading platforms.
News service – some brokers include access to a newswire service to keep you informed on the latest market-related news that can impact your trades.
Now that you know what types of brokers you can meet on the Forex market, are you ready to trade currencies?
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