Not all forex brokers are the same. There are those that label themselves as forex brokers but are in reality only just spread betters. You have to be careful in finding the best forex brokers for your trading activities if you want to engage in legitimate financial transactions. There are different of online forex brokers that you will likely encounter in your search for the best forex brokers.
As the forex market is not a centrally regulated exchange, there are some players that offer trading services under questionable circumstances. It is best for beginner traders to stay away from those forex brokers that do not have certifications from local and international regulatory bodies as well as trading and financial organizations. In the United States, the regulatory bodies for the forex trading industry are the Commodities Futures Trading Commission (CFTC) and the National Futures Association (NFA).
The three basic types of forex brokers for individual traders are the Straight-Through-Processing Forex Broker, the No Dealing Desk Forex Broker, and the Electronic Communications Network or ECN Forex Broker. Each one of these best forex brokers offers its own menu of services to assist the forex traders in their trades. What sets these types of forex brokers apart from others is their connection to the forex market. Forex traders who deal with any one of these three types of forex brokers can be assured that they are dealing with legitimate organizations that will not run away with their investment money.
Take a look at the differences among these three basic types of forex brokers to find out what fits your trading needs best:
- Straight-Through-Processing (STP) Forex Broker: this type of forex brokers are known to directly pass on electronically entered transactions directly to the interbank forex market. These transactions are passed on almost instantaneously to the liquidity providers as soon as the forex broker receives the forex trader’s orders. An STP forex broker allows your orders to be processed without intervention and delays.
- Electronic Communications Network (ECN) Forex Broker: this kind of brokerage operates like the interbank forex market in that there is no dealing desk involved and the players bid against each other in an interconnected trading system. The price quotes for currency pairs are displayed along with the lowest and highest outstanding bids. The downside to the price quote transparency that ECN forex brokers provide is that there is often a high maintaining account balance. The best forex brokers offering ECN services also often charge both spreads and commissions on trades.
- No Dealing Desk (NDD) Forex Broker: Both STP and ECN forex brokers can be classified as NDD forex brokers since they both directly patch transactions through from the clients to the liquidity providers in the forex market. Price quotes are delivered efficiently and orders are executed without delays, leaving very little or no room for any slippage at all. Transactions done through NDD forex brokers are wholly computerized. NDD forex brokers can either increase their spreads to cover them in highly volatile conditions or charge commissions for their services.