The first step in choosing a broker is to find out your choice orientation. You do n’t know what to order as soon as you walk into the restaurant, right? Of course, unless you are a regular visitor there. In most cases, you will first look at the menu to see what they offer.
There are two main types of brokers: trading counter (DD) and non-trading counter (NDD). Trading counter brokers are also called market makers, while non-trading counter brokers can be further subdivided into straight-through processing (STP) and electronic communication network plus straight-through processing (ECN + STP).
What is a trading desk broker, also known as a market maker?
Forex brokers operating through the trading counter rely on spreads to make money and conduct hedging transactions with customers. Trading desk brokers, also known as market makers. The market maker literally means creating a market for customers and setting prices artificially. You may think that there will be a conflict of interest, but in fact there is no. Market makers provide both buying and selling prices, which means they don’t care about traders’ decisions.
Since the market maker controls the price, for them, the risk of setting a fixed spread is very small (you will better understand the reason later). In addition, customers of the trading desk broker cannot see the actual interbank market interest rate. But don’t be afraid. The competition among brokers is fierce. The exchange rate offered by the broker at the counter is very close to the inter-bank interest rate.
Transactions conducted through the trading desk work like this:
Suppose you set up a 100,000 unit EUR / USD buy order through an over-the-counter broker. In order to satisfy your transaction, your broker first tries to find other clients that match you, or transfers your transaction order to a liquidity provider, a large entity that contains buying and selling financial assets. Through this operation, they minimize the risk, because they do not have a hedge transaction with you, they get a spread. However, in case there is no matching order, they will have to hedge with you. Note that different brokers have different risk management policies, so check with your broker in this regard.