Forex brokers type

Types of Forex Brokers

There are several types of Forex dealers with online access. They range from the perfectly legitimate brokerage firms to illegal betting houses. Each trader will have to choose their type of dealer carefully to select the right type of dealer – many share similar qualities and access to the Forex market, but their policies and procedures differ quite dramatically.

Beginning traders need to be especially vigilant about the type of dealer they select. Remember, the Forex market remains loosely regulated and this allows for a wide range of trading services that may not be suitable for many traders, particularly beginning traders.

Each type of broker represents a different level in the Forex market. Some levels are very high and have direct access to the Forex market while others are very distant and have very little connection to the Forex market. Yet most of these types of broker are legal in most countries and are used by different types of traders.
Bucket Shops

This type of broker has virtually no connection to the real-world Forex market. Bucket shops depend largely on using currency futures and options. These types of brokers will essentially “book” or take the opposite position of a trade made by a retail trader. However, they will not actually execute them on any exchange. Basically, the bucket shop is betting against the trader. Since the legality of bucket shops is questionable, this type of broker should be avoided by beginning traders.
Book makers

A book maker is very similar to a bucket shop. However, the book maker does not earn profits by winning the “bet”, but rather makes profits based on the spread (difference between the buy and sell price) of the trade. Like the bucket shop, this type of broker has little or no connection to the Forex market. Book makers are illegal in the United States and many other countries. Book makers are also called spread betters or spread betting companies.

One example of a book maker (or spread better) is Delta Index .
Retail Market Maker

These types of brokers represent the vast majority of online Forex dealers. They differ in many respects and offer a wide range of services. Most traders will use a retail market maker. They take different approaches in their connection to the Forex market. Some are directly connected while others deal with an intermediary for access to the Forex market.

Retail market makers are suitable for beginning Forex traders, but they should consider the services offered before making a selection. They are legal in the United States and most other countries.