What does a Trading Broker do?

Richard Montana | October 21, 2022

A trading broker is an intermediary who enables clients to buy and sell trading instruments for a small commission fee. This is known as online trading where you are speculating on the fluctuating prices of various instruments. They provide traders and investors with access to platforms so that they can trade various markets such as Forex, Stocks, Commodities, Cryptocurrencies, Indices and ETFs.

The majority of trading brokers will offer clients a range of different asset classes to trade online. There are also brokers who specialize in specific markets. The most popular types of trading brokers include Forex Brokers, Stocks Brokers and Crypto Brokers.

An account with a trading broker allows traders from all around the globe to download trading platforms and trade various markets online. All that is required is the client opens an account with the broker, funds the account and has an internet connection. This means that anyone can open a broker account to start trading online.

Each broker will have a range of different trading accounts to cater to different client needs. Some brokers will provide accounts that only offer online trading whereas others have accounts that come with other brokerage products and services including managed accounts, trading signals, trading tools, market analysis, social trading platforms, educational materials and dedicated account managers.

Execution Model

There are different ways in which trading brokers can handle client orders. Some brokers operate with a dealing desk policy which means that they process your trades themselves whereas a non-dealing desk broker offers direct market access (DMA). It is widely accepted that a non-dealing desk broker is often preferred due to the fact there is less likely to be any conflict of interest between the broker and trader. Below we will look at the different broker execution models.

Dealing Desk (DD)

A dealing desk broker is a market maker. Market makers provide their own spreads which can be fixed and incur an additional mark-up. Dealing desk brokers may decide to quote above or below the real market rates at any time they choose. They are counterparty for traders who don’t buy and sell assets directly with the liquidity providers. These brokers get their compensation through spreads or by taking the opposite side of the trade to their customers.

No Dealing Desk (NDD)

A no dealing desk broker offers traders direct access to the interbank market. They can commonly be STP or an STP/ECN broker. No dealing desk brokers more often than not will offer tighter spreads than a dealing desk broker. Some non-dealing desk brokers charge a trade commission for using their services whilst others will add a mark-up to the spreads to cover costs.

Straight Through Processing (STP)

A straight through processing (STP) broker enables the total computerization of transactions and instant processing via the interbank market without requiring any interference from the broker.

Electronic Communication Network (ECN)

ECN brokers offer and display order book data instantly. They commonly feature the processed orders and the price offered by banks in the interbank market, and therefore can be considered to make the operation more transparent. ECN brokers usually charge a commission for trades and process all transactions directly on the interbank market and do not require any dealing desk intervention. ECN brokers are widely considered by many experts and professionals to deliver the tightest spreads and fastest execution speeds with minimal slippage. IC Markets are a good example of an ECN broker.

Multilateral Trading Facilities (MTF)

Multilateral Trading Facilities (MTF) brokers bring buyers and traders together in an exchange platform under non-discretionary rules. The exchanges used by these brokers are not regulated, but the manner of operation is similar to a regulated exchange. Multilateral Trading Facilities offer transparent trading rules and a fair-trading structure while at the same time providing efficiency of the pricing structure and the clearance of transactions.

About the Author

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Richard Montana
Richard has many years of experience in broker research, testing, analysis and reviews. He knows what to look for through years of trading himself with different brokers and listening to the feedback of others.

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