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Before picking a Forex broker and starting dealing in foreign exchange, it is important to know which the major types of Forex brokers that you can encounter are. The main two types are Dealing Desk  brokers (also known as Market Makers) and No Dealing Desk brokers, which can be of two kinds: Straight Through Processing or Electronic Communication Network brokers. However, we can certainly suggest FXGM ZA for the best brokers in South Africa.

Market Maker Forex Brokers

Market Maker Forex brokers usually generate their income speculating on the gap between the bid price and the offer.  Their name comes from the fact that they actually provide their clients with a market acting as the other party within the commercial transaction the client performing. Without taking into account the trading decision of a particular dealer, market makers fill both types of orders (buy and sell) on their client’s behalf.

A transaction using a market maker has two possible scenarios. After filling in the trading order, you can have either an offset because of a match with other clients or because your order is passed on to the liquidity provider, or your order can be counter traded by your broker, case in which it is turned into profit.

No Dealing Desk Forex Brokers

The difference between Market Makers and No Dealing Desk brokers is the existence of a dealing desk through which the orders are passed. No Dealing Desk brokers do not act as the other party within their clients’ trading transaction. They just make the connection between the two trading parties. No Dealing Desk brokers can be of two kinds: Straight Through Processing or Electronic Communication Network brokers.

Straight Through Processing Brokers

Their name refers to the routing system they use to send their client’s orders straight to liquidity providers, which benefit from direct access to the interbanking market. STP brokers generally work with several liquidity providers, each one of them quoting a pair fo bid and ask prices. These quotes are sorted out by the system, which will pick the best prices. However, the quotes dubbed by the system as the best ones are not the same with the ones you will see on your platform. The prices you get contain a markup (usually a fixed amount). This is why most STP brokers are working with variable spreads.

Electronic Communication Network Brokers

The difference between STP and ECN brokers is the ability the latter provide for their clients’ orders to interact with the ones placed by various participants in the ECN. These participants can bear different forms such as banks, other retail dealers, hedge funds, or other brokers. All of them trade against each other within the same Electronic Communication Network, speculating on the difference between bid and ask prices. Another advantage ECN brokers present for their clients refers to letting them see what is the Depth of Market – a financial parameter displaying where the other participants on the same market have placed their buy and sell orders. Unlike other types of brokers, ECN brokers work on commission.