An Essential Lesson for Investors: Forex Broker's Business Model

The first lesson for successful forex trading is to select a broker. Such a choice may be more complex than it seems to be. Many investors learned forex platforms through brokers' advertisements (especially telesales) and their partners (the so-called introducing brokers). However, is your platform really the right one？

This article will analyze the business model of forex brokers specifically, that is, the brokers' strategies to make profits.

Business models vary from broker to broker. How they charge customers is actually how they make profits. Generally speaking, online forex brokers are divided into two types: Dealing Desk (DD) and No Dealing Desk (NDD), while the latter can be further subdivided into: Straight Through Processing (STP) and Electronic Communication Network + Straight Through Processing (ECN+STP).

DDs are also called Market Makers (MM). With a Dealing Desk for order processing, these brokers make money through spreads and will take the opposite side of clients' trade if necessary. Conversely, NDDs work as a direct linkage between clients and the inter-bank market with no Dealing Desk. These brokers can make profits by either charging a commission for trading or putting a markup by increasing the spread.

While the above-mentioned brokers are all legal, the business model for illegal brokers is to make profits from traders' losses via illicit means. Such brokers usually hoodwink investors into opening accounts and making deposits on illegal platforms under the guise of “high return on investment”, and then flee the platforms once getting investors out of their capital by all means.

With that said, choosing a legal forex broker is essential. The regulatory information is another key for verifying whether a platform is legal. Although most illegal platforms are filtered out for no regulation, there are still others cloning the quality of other regulated companies. But investors can identify them by comparing their sites with the registered ones on the official website of the regulatory authority. Investors can also learn their information through the WikiFX web or app, on which all the details are available once searching the broker's name.

For more details about your broker, please click here to download WikiFX https://bit.ly/wikifxIN