 Forex broker types: dealing desk and no dealing desk

In forex, there are two main types of brokers, dealing desk (DD) and no dealing desk
(NDD), DD are also called market makers and NDD can be further divide into two: straight
trough processing (STP) and electronic communication network + straight trough
processing (ENC + STP).

Dealing desk broker:

This type of broker create the market for their clients, meaning they often take the
other side of a clients trade, this does not represent a conflict of interest because they
provide buy and sell quotes, which means, they are filling both orders of their clients and
they are indifferent to the decisions of and individual trader. Clients of the DD broker don`t
see the real interbank markets rates but the competition among brokers is so stiff that the
rates offered by this types of brokers are close if not the same to the interbank rates.

This type of broker makes money through spreads and providing liquidity to their
clients.

No dealing desk broker:

As the name suggest this type of broker don`t pass their clients order through a dealing
desk, they don`t take the other side of their client`s trade, they just link two parties
together.

This type of brokers makes money through charging a little commission or putting a
small markup increasing the spread slightly.

NDD brokers can be STP or ECN + STP

Straight through processing (STD):

This type of broker route their clients directly to their liquidity

providers, how has access to the interbank market. They usually have many liquidity
providers which each provides its own quote of bid and ask.

For example, they have 3 different quote providers, each with their
own bid and ask price, them the broker will pick the highest bid (you want to sell high) and
the lowest ask (you want to buy low) and then the broker will add a small markup, usually
1-pip, this means you will see a 3-pips spread (1 in the bid, 1 in the ask and the 1 that is the
spread).

While most STD brokers offer fixed spreads most have variable
spreads.

Straight trough processing + electronic communication network (STD+ECN):

ECN brokers allow their clients to interact with the orders of the
participants in the ECN, this could be banks, retail traders, hedge funds, and even other
brokers. In essences, participants trade against each others.
 This type of brokers allows their clients to see the depth of the market, it displays where
the buy or sell orders of the market participants are.

ECN brokers usually get compensated through a small commission because of their
nature.

 Spread

In forex, brokers quote two different prices of currency pair: the bid price and the ask
price.

The bid is the price at which you can sell the base currency.

The ask is the price at which you can buy the base currency.

The difference between these prices is the spread.

The spread is measured in pips, which is the smallest unit of price movement.

In forex there are two types of spread, fixed and variable or floating

A fixed spread is usually offered by DD brokers, meanwhile variable spread is offered by

NDD brokers.

Fixed spread stay the same regardless of what`s happening in the market , it doesn`t
matter if the market is volatile or not, the spread keeps the same. The advantages of this
types of spread depends on the trader, it’s a cheaper alternative for traders how doesn`t
have a lot of money to star trading, it also makes calculating transaction costs more
predictable since the spread never change. The disadvantages are that requotes can occur
frequently since pricing is coming from one source, the broker. When the market is volatile
and prices are changing to fast the broker won`t be able to widen the spread that fast, also
slippage can occur, it happens when the prices are chancing too fast for your broker to keep
up and you end with another price, completely different to what you wanted to enter.

Variable spread are offered by NDD brokers and as the name suggest the spread
changes over time, the spread will widen or tighten based on the market situation and
volatility. Typically spread widen during data releases as well as the periods when the
liquidity of the market decreases. Variable spreads eliminate the requote experience, it
provide more transparency in pricing. The disadvantages are that they are not ideal for
scalpers, everything you see as a profit can fly away in the blink of an eye, and they are also
bad for new trades with little experience, what looks good can go horribly wrong.

So…what is better? It depends on the type of broker you are, for someone with
experience variable spreads are better but it could be good to for someone new that has
good analyze, for scalpers the fixed spread is better because you will always know the
variation, basically, it depends on the experience and the type of broker you are or you
want to be.
  6 crucial things to consider when choosing a forex broker:
1. Security.
2. Transaction cost.
3. Deposit and withdrawal.
4. Trading platform.
5. Execution.
6. Customer service.
 Technical analysis:

Technical analysis is the framework where traders study the price movement, the theory
is that a person can look at historical price movements and determine the current trading
conditions and potential price movement. For this method the common way to see the
history of movements is through charts, they reflex all the market conditions in the past the
most fulfilling way. You can look past data and see price points and what happened at does
points, come out with places to see and patters to follow.

This method is really subjective, just because two persons are looking at the same chart
and the same history doesn`t mean they will come out with the same analyses.

The most important thing is that you understand the concepts under technical analyses
so you will know how price will fluctuate if it fill the requisites.

 Fundamental analyses:

This is the way of looking at forex markets by analyzing economic, social and political
forces that may affect the supply and demand of an asset, in this case, the asset is the
currency, after all the demand is what makes and asset go up or down, using supply and
demand is the easy way, the hard part is analyzing all the factors that affect supply and
demand, you will have to understand way certain events affects a currency economy and
monetary policy ultimately.

The idea behind this analyses is that if a country`s current or future economy outlook is
good, their currency should strengthen.

 Sentimental analyses:

The forex market doesn`t simply show all the information out there, it also shows the
sentiments of the traders, what they think is going to happen, each trader thoughts and
opinions is represented in their positions.

The problem is, that as retailed traders, no matter how strongly you fell about a certain
trade, you can`t move the forex market in your favor.

As a trader you HAVE to perform all this, you have to take all this into consideration. You
need to perform sentimental analyses; this can be an important tool in the toolbox.
  3 types of charts and how to read them:

Line chart: a simple line chart draws a line from one closing point to the next closing
point, when strung together with a line you can see the general movement of a currency
pair over a period of time.

Bar chart: it`s a little more complex, it shows the opening and closing prices as well as
the highs and lows; the bottom of the vertical bar
indicates the lowest traded price for that period of
time, while the top of the bar indicates the highest
price paid, the vertical bar itself indicates the
currency pair`s trading range as a whole. The
horizontal hash on the left side of the bar is the
opening price and the right-side horizontal hash is
the closing price. This type of chart is also known as
OHLC char because they show the open, high, low
and closing point.

Candlestick chart: it shows the same price information as a bar chart, but in a prettier,
graphic format. However in candlestick
charting, the larger block of body in the
middle indicates the range between the
opening price and the closing price,
traditionally if the block in the middle is
filled or colored in, then the currency pair
closed lower than it opened; if the block in
the middle is hollow then the currency pair
closes higher than it opened. You also can
substituted the white or hollow for green
and the black for read, this makes it easier
to spot patters, uptrend’s/downtrends and
possible reversal points.