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There's a extremely wide choice of currency broker firms online and when you are starting out in forex trading it can be hard to find the best. We have a tendency to be drawn to advertising, assuming they are all working in the same way. Actually this is not true. Currency exchange brokers have very different business models which affect the way that they operate. In some cases, you could be shocked to hear that they might be working against their customers instead of for them.  

Of course traditionally a broker carries out his clients' instructions, placing orders for them in the market. Originally brokers worked with telephone orders and simply made the order for the best price that they could get thru their dealing desk. These days, everything is done online so that clients put in their orders for a certain cost. You do still need a broker who will connect to the market thru their software platform.

Many brokers still work in the traditional way, placing orders for clients as they're instructed. These are frequently the brokers who run standard forex accounts with minimum investment of $10,000 and upward. But the web has opened up forex trading to people with much lower investment funds. More lately, companies have come on the scene to cater for these smaller investors and they do not always follow the pattern of traditional brokers. To cut costs, they usually do not have their own dealing desks and they may operate in some totally different ways . This could have important effects for your funds and how they're managed.

So let's take a look at the kinds of business model that you will come across in your search for a currency broker.

No Dealing Desk (NDD) Currency Brokers

NDD brokers work in a corresponding way to brokers with dealing desks, but they use a selection of liquidity providers to essentially match their clients' orders in the market. Competition between liquidity suppliers keeps the spread low, even though the broker sometimes increases the spread to cover their own costs and make some money.

Electronic Communications Network (ECN)

Foreign exchange brokers who use the ECN can access an online network where trades are filled. Many market makers work this way, as well as some brokers, banks and other enormous currency traders. Spread is generally low but you could be invoiced per trade.

Market Makers

Market makers aren't brokers in the true sense because instead of placing your order in the market they will match it themselves and then cover themselves against any loss by taking a position in the ECN or market that offsets their commitment to you either partly or entirely. Market makers set their own prices, although of course these will be related to market prices. They regularly don't like clients to use scalping strategies as the very short term nature of these trades makes it harder for them to offset their risk. Some traders are pleased to use market makers but others consider that they have got a conflict of interest which may work against you as a trader.

Bucket Shops

Foreign exchange bucket shops are like bet takers in that they simply match your trade without always taking any position in the market. They may not even have any connection into the genuine foreign exchange market. They win if you lose, so if you're successful they'll probably close your account and return your funds. There is truly no point in becoming concerned with a bucket shop unless you just desire experience at awfully low levels of investment, and plan to lose cash. They are against the law in some jurisdictions, and do not deserve to be called a currency broker.

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