Types of Forex Brokerage Firms
Forex brokers are brokerage firms that give currency traders access to a trading platform for buying and selling foreign currencies. A currency trading broker — also called a retail forex broker — handles only a tiny slice of the forex market’s total volume, and currency traders use these brokers to reach the currency market around the clock, 24 hours a day. For how it compares with other brokers, see the full broker comparison.
Forex brokers let clients trade all the major currency pairs — EUR/USD, GBP/USD, USD/JPY, and USD/CHF — plus other currencies, as well as gold, silver, and oil. Many also publish the sentiment data a broker publishes on those pairs, drawn from their own client positions.
Before trading, a forex broker will ask clients to deposit funds into their accounts. Through leverage, clients can trade amounts larger than what they’ve actually deposited.
It pays to do some research to check whether a broker has a solid reputation and offers the features you’re looking for. Most forex brokers let clients open a demo account so they can get a real feel for trading, and it’s a sound idea to test as many platforms as possible before settling on a broker.
On top of that, since the forex market operates around the clock, most flexible forex brokers offer round-the-clock customer support.
Types of Forex Brokerage Firms
If you trade forex, you’ll find dozens of brokers competing for your business. Let’s look at the types of forex brokerage firms out there and what to weigh when picking the right one for you.
One key consideration when opening a forex trading account is choosing among the different types of forex brokers available to handle your transactions. This matters a lot, because the type of broker you pick can affect the quality of service you get, along with transaction fees, spreads, execution speed, and how reliable withdrawals are.
1. Market Maker
Market makers generally quote clients a two-sided market from a specialist forex dealer working as part of the broker’s in-house dealing desk. When a price is traded, the broker ultimately executes by taking the other side of that particular transaction with its client. That’s why they’re called market makers, or DD, short for Dealing Desk Broker.
The market maker’s goal is to capture part of the spread and generate enough volume on both sides of the market so it doesn’t have to offload accumulated risk with a professional counterparty.
If the trade executed is large enough, the market maker may choose to offset it immediately, especially if it thinks the market could move against it. Otherwise, it may add the trade to its own book, depending on its market outlook and the trade’s size.
Market makers literally create a market for their clients, meaning they often take the opposite side of a client’s trade. You might assume that’s a conflict of interest, but in practice it isn’t — market makers quote both the bid and the ask, which means they fill their clients’ buy and sell orders and are indifferent to any individual trader’s decisions. A separate question is which side of the trade the broker takes once the fill has happened, which is about where the risk of the position goes rather than about the label the firm uses.
Say you place a buy order for EUR/USD worth 100,000 units with this broker.
Your broker will first try to find a matching sell order from its other clients, or pass your trade to its own liquidity provider — a large entity that can readily buy or sell financial assets.
What are the pros and cons of forex market makers?
Pros:
- Market makers offer a wealth of online support, technical analysis, market news, and a range of educational material, from e-books to online tutorials.
- Popular, easy-to-use trading platforms like MetaTrader 4 are widely available and supported.
- Spreads are fixed rather than variable, and no commissions are charged.
- Volatility can feel a bit lower, since the market maker tries to steady the market view for the trader.
Cons:
- Manipulation can occur in the form of re-quotes, slippage, or sudden moves designed to trigger stop-loss orders.
- Spreads may not be as tight as they are with an ECN.
- Servers can freeze during major news releases, causing more slippage.
- Restrictions may apply to scalping strategies such as expert advisors (EAs).
2. STP (Straight-Through Processing)
Forex brokers running an STP system route their clients’ orders straight to their liquidity providers, who have access to the interbank market. Those providers are not obliged to fill every request that reaches them, and the option the liquidity provider holds to accept or reject one is set out in its own disclosed policy.
STP brokers typically work with several liquidity providers, and each one quotes its own bid and ask price. Say an STP broker has three different liquidity providers feeding its system — it will see three different bid/ask pairs.
Liquidity Provider A 1.2998 / 1.3001
Liquidity Provider B 1.2999 / 1.3001
Liquidity Provider C 1.3000 / 1.3002
Its system then ranks these bid and ask quotes from best to worst. In this case, the best price on the bid side is 1.3000, and the best price on the ask side is 1.3001, so the bid/ask is now 1.3000/1.3001.
Will this be the quote you see on your platform?
Of course not!
Your broker isn’t running a charity. It didn’t go through all the trouble of sorting these prices for free!
To compensate itself, your broker adds a small markup, usually fixed (the spread). If its policy is to add a 1-pip markup, the price you’ll see on your platform will be 1.2999/1.3002.
So when you decide to buy 100,000 units of EUR/USD at 1.3002, your order is sent through your broker and then routed to liquidity provider A or B.
If your order is accepted, liquidity provider A or B will hold a short position of 100,000 units of EUR/USD at 1.3001, you’ll hold a long position of 100,000 units of EUR/USD at 1.3002, and your broker pockets one pip of profit.
The counterparty question matters more again for options. Our page on forex options sets out the three venues the phrase covers and who stands behind each.
3. ECN (Electronic Communication Network)
On the other hand, true ECN forex brokers let their clients’ orders interact directly with other ECN participants’ orders.
Participants can include banks, retail traders, hedge funds, and even other brokers. In essence, participants trade against each other by posting their best bid and ask prices.
ECNs also let their clients see “market depth.”
Whether you actually see that depth, and how clearly, depends on the trading platform the broker supplies as well as on the feed behind it. Platforms differ in how prominently they present it, as covered in cTrader platform explained.
ECNs generally don’t run their own dealing desk. Instead, the broker provides an electronic trading platform where professional market makers at banks, along with traders and other forex market participants, can submit bids and offers through the system.
One advantage some ECNs offer is that the trader posting the price can be given a degree of anonymity, which can suit traders who don’t want to reveal that they’re the one behind a particular bid or offer.
Ultimately, it’s easier to work out which type of forex brokerage suits you once you define your investment goals — whether you’re a retail currency trader using these platforms to speculate on currency direction, or you’re with an investment group or a large financial-services firm that trades on behalf of investment banks and other clients, or even owns one.
And that shapes how you’ll deal with these types of forex brokerage firms — whether you’re an individual trading a tiny slice of the overall forex market’s volume, or a large entity or company.
Put the theory into practice
Concepts become far easier to understand once you see them on a live chart. A demo account gives you real market data with no capital at risk while you build familiarity.
Advertising disclosure: partner link. Easy Trade may receive compensation. Educational content, not financial advice. CFDs carry a high risk of losing your capital.
Read also: Best Financial Brokerage Firms
The execution model also shapes how a firm treats arbitrage strategies, which several retail client agreements define as abusive trading.
Frequently Asked Questions
What are securities trading companies?
Plenty of financial trading firms around the world let you buy and sell stocks, securities, digital currencies, and other assets. These include:
TD Ameritrade
Robinhood
Charles Schwab
Fidelity Investments
Merrill Edge
Coinbase
These firms are known for offering online trading services to individuals, and they also provide investment services, financial reports, and analytical tools for investors. A separate category covers firms that introduce rather than execute, which pass an order on and are barred from holding the money. Rebate portals sit in that same category, since they introduce the account and are paid a share of what it generates.
Keep in mind that you should look for a firm that fits your needs and offers the best services, fees, and features, and confirm that your chosen firm holds the required licenses and that its service matches your level of trading experience, remembering that what a licence obliges a firm to do differs by regime.
What do financial brokerage services include?
Financial brokerage services are the services provided by firms specialized in trading and investment, giving investors access to the financial markets to buy and sell securities, digital currencies, and other assets. Services offered by financial brokerage firms include:
Online trading of stocks, currencies, and other assets.
Financial news, reports, and analytical tools for investors.
Financial and investment advice and consulting.
Buy or sell stock recommendations based on technical and fundamental analysis.
Various trading account types designed to fit investors’ needs.
Stop-loss tools and risk management to help investors limit losses.
Trading fees, commissions, and other charges.
Keep in mind that financial brokerage services can be used to pursue profit, though results are never guaranteed.
How do I check if a company is licensed in Saudi Arabia?
To check whether a financial firm is licensed in Saudi Arabia, you can check the website of the Saudi Capital Market Authority (CMA), which lists all financial firms licensed in the Kingdom. Go to the professional licenses page (https://eservices.cma.org.sa/AuthorizedPers/ProfessionalLicense/Pages/default.aspx) and search for the firm by name or license number.
You can also check financial firms’ own websites for official license details, which are usually displayed on the legal information page or at the top of the trading page.
Keep in mind that you should carry out proper due diligence before dealing with any financial firm — confirm the license is valid, check the firm’s credibility, and review its trading track record and feedback from other traders.
Which financial brokerage firms operate in Saudi Arabia?
Several financial brokerage firms are licensed in Saudi Arabia, including:
Al Rajhi Financial Group (Rajhi Capital)
Aljazira Capital
Alahli Capital
United Capital
Samba Capital
Riyad Capital
Alinma Investment
Arabiyya for Securities
Note that besides these firms, many other licensed firms operate in the Kingdom, which you can find via the Saudi Capital Market Authority’s website (https://cma.org.sa/Ar/Pages/default.aspx).
What is the best trading broker?
There’s no single “best” trading broker for everyone — the right choice depends on factors like the trader’s experience, financial capacity, investment goals, and the type of assets they trade.
Factors investors should weigh when choosing a broker include:
- The broker’s credibility and reputation.
- Official licenses and any signs the firm complies with financial laws and regulations.
- The fees and commissions the broker charges traders.
- The type and quality of analytical tools, news, and information available on the trading platform.
- Risk-management tools available, such as stop-loss and take-profit orders.
- The client area and the level of technical support available.
- How easy the trading platform is to use and its overall design.
Since these factors vary from person to person, check each one and research each broker further based on your own personal trading needs.
Disclaimer
This article is for educational purposes only and does not constitute investment advice or a recommendation to use any specific broker. Trading forex and CFDs involves significant leverage and carries a high risk of losing your invested capital rapidly; a majority of retail investor accounts lose money when trading these products. Do your own research and check a broker’s licensing before depositing funds. Some links on this site are affiliate links, meaning EasyTradeWeb may earn a commission if you sign up through them, at no extra cost to you.