In financial markets such as Forex market, a broker acts as the intermediary between the trader and the market.
To make the right choice among the active brokers in financial markets, one must have a good understanding of the services provided and the way each broker operates.
Understanding the types of brokers is an essential part of how to choose best forex broker. Brokers are categorized into Dealing Desk (DD) and Non-Dealing Desk (NDD) types, with the Non-Dealing Desk category including various trading accounts such as ECN and STP.
Importance of Choosing a Forex Broker
Understanding how to choose a forex broker is crucial because selecting a suitable broker depends heavily on your trading strategy, especially when considering factors like spread and commission costs.
Types of Brokers by Execution Model
Brokers are divided into two main types:
- Dealing Desk (DD)
- Non Dealing Desk (NDD)
Dealing Desk Brokers (DD)
In this type of broker, the trader deals directly with the broker itself. This means the broker buys or sells the trader's requested amount based on the type of order.
Non-Dealing Desk Brokers (NDD)
These brokers act as intermediaries between traders and liquidity providers and are divided into two categories:
- STP Brokers (Straight Through Processing)
- ECN Brokers (Electronic Communication Network)
STP Brokers
When learning how to choose a forex broker, it's important to understand that in STP brokers, liquidity providers are fixed and predefined.
These brokers offer floating spreads and may apply a markup a slight increase in spread for additional broker profit. However, no commission is charged for executing trades, and they provide high-speed execution with moderate transaction costs.
ECN Brokers
ECN brokers provide a network of market makers (banks, other brokers, large institutions, traders, etc.).
Orders are automatically matched and executed within this network. The broker charges a separate commission for connecting and completing orders.
A critical factor in how to choose best forex broker is understanding that ECN brokers provide the highest transparency in executing trades and typically offer ultra-low spreads.
Comparison Between Dealing Desk and Non Dealing Desk Brokers
The business model, order handling, and connection to the interbank market differ between DD and NDD brokers. The table below presents a comparative overview:
Feature | Dealing Desk (DD) | Non Dealing Desk (NDD) |
Order Execution | By broker (internal) | By liquidity provider |
Conflict of Interest | Yes | No |
Spread Type | Fixed | Floating |
Chance of Requotes | Yes | Very low |
Price Transparency | Lower | Higher |
Suitable For | Beginners | Professionals |
Criteria for Choosing a Forex Broker
After selecting a broker, its services and credibility should be evaluated based on the following factors:
- Regulation and Supervision
- Trading Platform
- Customer Support
- Account Types and Trading Conditions
- Deposit and Withdrawal Methods
Regulation and Supervision
Regulation refers to the supervision of a broker's operations by an international or regional financial authority.
There are three levels of financial regulators with different levels of strictness:
- Tier-1 Regulators: The strictest and most reputable global regulators;
- Tier-2 Regulators: Reputable with less strict oversight compared to Tier-1l
- Tier-3 or Offshore Regulators: The least strict, often used by brokers serving sanctioned countries like Iran and Lebanon.
Trading Platform
The trading platform offered by a suitable broker should be stable, fast, and well-known. The most widely used platforms among brokers are MetaTrader 4 (MT4), MetaTrader 5 (MT5), and cTrader.
Additionally, fast trade execution and minimal slippage indicate a high-quality infrastructure.
Customer Support
One important aspect of how to choose a forex broker is access to quick, multilingual, and responsive customer support under various conditions. Ideal support factors include:
- 24/7 availability
- Multiple communication channels (chat, phone, email)
- Multilingual support
Account Types and Trading Conditions
A variety of account types (ECN, Micro, Standard, etc.) enables traders to match their accounts to their trading strategies. Important criteria include:
- Minimum deposit requirements
- Leverage options
- Spread levels
- Transaction commissions
Deposit and Withdrawal Methods
Due to the volatile nature of financial markets, a broker should offer various deposit and withdrawal methods to ensure seamless transactions even during technical issues. Common methods include:
- Bank wire transfers
- Credit cards
- E-wallets like Skrill and Neteller
- Cryptocurrencies
Conclusion
Choosing a forex broker should focus on the order execution structure (Dealing Desk or Non-Dealing Desk), spread type (fixed or floating), chance of requotes, price transparency, and interbank market connectivity.
Another key element of how to choose a forex broker is evaluating the broker's credibility by examining regulation levels (Tier-1, Tier-2, Tier-3, or Offshore), account structures (ECN, STP, etc.), commission policies, and trading platforms. All these factors must ultimately align with the trader's personal trading strategy.
