Brokers

What a broker is

In the foreign exchange market, a broker is the intermediary between you and the other participants: it takes your order to buy or sell a currency pair and gets it filled. There are two main categories of forex broker, dealing desk brokers and no dealing desk brokers, and the difference is who ends up on the other side of your trade.

Dealing desk brokers

Dealing desk brokers are also known as market makers. They make money by charging a spread on each trade, the difference between the bid and the ask price. A dealing desk can take the opposite side of its clients' trades, which is called trading against the client, and that creates a conflict of interest between the broker and the trader. This is the model the industry calls B-book.

No dealing desk brokers

No dealing desk brokers pass your order through to the interbank market, where the major financial institutions trade currencies with each other. They charge a commission on each trade instead of earning the spread. There is no conflict of interest, because the broker never takes the other side of your trade. This is the model the industry calls A-book.

Two kinds of no dealing desk

Within the no dealing desk category there are two main types: ECN brokers and STP brokers.

An ECN broker, short for electronic communication network, gives you direct access to the interbank market and shows you bid and ask prices from several liquidity providers at once. It charges a commission on each trade.

An STP broker, short for straight through processing, sits between you and its liquidity providers and sends your order straight through to them without taking the other side. STP brokers offer variable spreads, often tighter than a dealing desk's.

Whichever broker you use

The broker decides your spread, your commission and who fills you, and all three show up in your results. Connect your broker account on the Connections page and every fill, commission and swap lands in your journal as it happens, so the cost of the broker you chose is a number you can see rather than a guess.