Srading.com

Menu
  • Home
  • Markets
    • Forex
    • Stock
  • Fundamental Analysis
    • Economics
    • Money & Banking
  • Technical Analysis
    • Drawing Tools
    • Chart Patterns
  • Tools
    • Online Charts
    • Economic Calendar
    • Interest Rate Today (Live Widget)
    • Forex Market Hours
    • Currency Indexes Chart
    • National Holiday Calendar
    • CoT Chart
    • Quotes
Home
Forex
Forex Broker: Types and How to Choose?
Forex

Forex Broker: Types and How to Choose?

May 10, 2022 Zafari
forex broker

Forex brokers are intermediary financial companies that connect currency traders to the currency market. If you want to trade financial assets, you need to open an account in a forex broker, stockbroker, binary options broker, etc.  

A broker provides its customers with live data and software to analyze the market. A broker itself buys data from another company which is called data providers. Swiss Quote is one of the most famous data providers.

A broker also may buy its trading platform (software) from other companies. MetaTrader 4 is the most famous software for trading forex, developed by MetaQoutes. 

You Will Continue Reading

Toggle
  • Types of Forex Broker
    • ECN Forex Broker
    • Market Maker Forex Broker
    • STP Forex Broker

Types of Forex Broker

Forex brokers are different based on your connection to the interbank network. I will explain below more in the following. 

ECN Forex Broker

ECN stands for Electronic Communication Network. It is an internet-based Forex or stockbroker that directly connects its clients to the interbank network or directly communicates to the real market. It means that you buy from real sellers and sell to real buyers in the market by sending your orders straight to the real market. 

An ECN broker generates revenue by charging spread, commission, and overnight fees. 

  1.  Spread: spread is the difference between ask and bid prices; 
  2. Commission: an ECN broker charges a commission every time you place a trade; and
  3. Swap: swap is the overnight fee that a broker charges. It is the difference in interest rates between countries.  

An ECN broker has shared interests with its clients. If its clients win, the broker also wins by charging spread and commission. If the client loses, the client may get discouraged and stop trading, which is a loss for the broker. In other words, Shared Interests between you and an ECN broker exist, which means both of you may win or lose together. 

An ECN forex broker’s spreads are narrower during rush hours and wider during non-rush hours. It happens because your broker does not control the spread. 

ECN Forex brokers are connected to many banks directly that provide bid and ask prices. Your ECN Forex broker selects the lowest bid price and highest ask price to narrow down the spread. For example: suppose that you want to buy USDJPY, and there are three banks, A, B, and C.

  •  Bank A quotes (110.01-109.95); 
  • Bank B quotes (110.00-109.94); and
  • Bank C quotes (110.02-109.99). 

Now, your ECN broker will quote you (USDJPY: 110.00 – 109.99) to minimize your cost. If you buy USDJPY, your broker communicates to Bank B (the lowest price), and if you sell it, your broker will communicate to Bank C (the highest price). 

Market Maker Forex Broker

Market Maker is also known as a Dealing Desk broker. It is a type of forex broker that does not direct your orders to the interbank exchange. In other words, a Market Maker does not connect you to the real market. 

A Market Maker only buys data from a data provider and trading platform (software), such as MT4, developed by MetaQoutes. 

When a trader places a trade, the Market Maker acts somehow to take the opposite position. For example: when you buy, the broker sells, and when you sell, the broker buys. 

Since most traders lose money trading financial assets, a Market Maker broker makes money. 

Because an MM does not direct to the interbank network, a Conflict of Interest exists between traders and a Market Maker broker. Conflict of Interest here means that if you as a trader win, your broker loses, and if you lose, your broker makes money.

 A Market Maker does not make money only by losses of its customers but also in the following ways:

  1.  Swap: Unless you have opened an Islamic Account, a Market Maker broker charges you a swap, the difference between interest rates of two countries plus a markup. If you open an Islamic Account, your broker will not charge you a swap because in Islam, receiving interest is Haram. Some brokers offer Islamic accounts, and some do not. If you are interested in opening an Islamic Account, check your broker’s website.
  2. Spread: Spread is the difference between ask and bid prices. Usually, a Market Maker has more control over STP and ECN brokers. Some Market Makers even provide fixed spreads. 

Note (1): most Market Makers do not charge commissions, but its spread is higher than the ECN account. 

Note (2): spreads of Islamic Accounts are higher than Standard Accounts in most brokers. 

STP Forex Broker

STP stands for Straight Through Processing. This type of forex broker mixes ECN and Market Maker brokers’ functions. It means that an STP broker has the choice to direct orders to Interbank Exchange or take a position against the trader. 

This type of broker makes the most money because it can filter traders. It will direct the order of winning traders and take a position against the losing traders. 

An STP broker makes money like an ECN broker by charging spread, commission, and swap.

Share
Tweet
Linkedin
Pinterest
Reddit
Email
Prev Article
Next Article
Tags:Forex

Related Articles

Margin in Forex: Every Thing You Need to Know

Margin in Forex: Every Thing You Need to Know

Currency Correlation Explained in Simple Words

Currency Correlation Explained in Simple Words

Forex Trade History Report in MT4 & MT5 (A-Z Guide)

Forex Trade History Report in MT4 & MT5 (A-Z Guide)

What Does Swap in Forex Mean? And How to Calculate?

What Does Swap in Forex Mean? And How to Calculate?

Types of Forex Orders: Fully Explained

Types of Forex Orders: Fully Explained

Equity and Balance in Forex

Equity and Balance in Forex

About The Author

Zafari

Zafari is a professional trader and has been in the financial market since 2014. He has a bachelor of public economics and an MBA. For some reason, he does not show his face. And he loves you all!

Leave a Reply Cancel Reply

Recent Posts

  • Capitalism: The Definitive Guide
    What Is Capitalism? Capitalism is an economic and political system …
  • Trading Checklist: What It Is, Info-graphic, and …
    What Is a Trading Checklist? A trading checklist is a …
  • Private Equity (PE): What It Is, How …
    Private equity is an investment in a private company. The …
  • Government Spending: The Definitive Guide
    Government spending refers to the government’s total expense and the …
  • Three Basic Economic Questions Explained in Simple …
    Three basic economic questions are: Who answers these questions? The …

Popular Posts

    Srading.com

    QUICK LINKS

    • About
    • Cookies Policy
    • Terms & Conditions
    • Disclaimer
    • Privacy Policy
    • Contact Us

    LATEST POSTS

    • Capitalism: The Definitive Guide
    • Trading Checklist: What It Is, Info-graphic, and PDF
    • Private Equity (PE): What It Is, How It Works, & How to Get In
    • Government Spending: The Definitive Guide
    • Three Basic Economic Questions Explained in Simple Words

    FOLLOW US ON SOCIAL MEDIA

    • Facebook
    • Twitter
    • LinkedIn
    • Instagram
    • Pinterest
    • Telegram
    • Reddit
    • YouTube

    Trading financial assets are risky. Everything you read on this website is just for educational purposes or personal opinions only. Read our DISCLAIMER!

    Copyright © 2025 Srading.com
    Call on WhatsApp

    Ad Blocker Detected

    Our website is made possible by displaying online advertisements to our visitors. Please consider supporting us by disabling your ad blocker.

    Refresh
    We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By continuing this website or clicking “Accept”, you consent to the use of ALL the cookies.
    Do not sell my personal information.
    Cookie SettingsAccept
    Cookies Policy
    Manage consent

    Privacy Overview

    This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
    Necessary
    Always Enabled
    Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
    CookieDurationDescription
    cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
    cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
    cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
    cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
    cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
    viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
    Functional
    Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
    Performance
    Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
    Analytics
    Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
    Advertisement
    Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
    Others
    Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
    SAVE & ACCEPT