Traders new to Currency Trading may find it difficult to swallow the facts about how the Forex Broker operates. Conventionally, a trader (client) would call his/her forex broker for buy or sell trade who in turn would place an order through their dealing desk, for which the broker would charge commission or earn out of the difference between bid and ask price for Forex Trading. Now days order is not being placed by telephone but traders have an online account and software with the help of which they can see real time changes and place an order.

A typical standard forex accounts would require a deposit of ten to fifty thousand dollars for you to start trading. While there are some brokers who also provide mini forex accounts targeted towards the traders with low investment capacity. Most of these brokerage firms targeting smaller investor do not even have their own dealing desks.

Forex NDD (No Dealing Desk)

There are brokers who do not have their own dealing desks, so they outsource this service from another company who would provide these brokerage firms with currency rates and clients’ trades can be placed there. Now the actual spreads between the bid and the ask price may be smaller but the brokers may increase the spread where they have their profit margin.

Forex ECN (Electronic Communications Network)

Electronic Communications Network provide for a trading platform where the banks, individual traders, institutional traders and market makers come and place their orders. ECN provider places order for their clients under their name and charge a fee for every trade. Over here the spreads are usually small.

Forex Market Makers

Being a trader if you have an account with Market Maker then they don’t try to match your order but they take opposite position to yours and offer you their own price. For lowering their risks they also place a similar position to yours with an Electronic Communications Network.

Market makers are not actually placing your orders so they are often not termed as Forex Broker.

Forex Bucket Shops

Bucket shop’s model is similar to that of Market makers and would not actually place your order in the market but take an opposite position to you. The difference here is that Bucket shops do not lower their risks like market makers, so they always wants you to loose and if you always profit from the transactions they would decide rather not to take your trade orders.

Bucket shops may be illegal in some jurisdictions and its best to avoid trading with them.

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