As a beginning trader, the first critical decision you’ll make is selecting a forex broker.
This is why you should always do your homework (“do yo DD”) and DYOR.
Dealing desk forex broker? Non-dealing desk forex broker? Market maker forex broker?
If you’ve begun conducting your own research on which forex broker to employ, you’ve definitely come across a slew of jargon and acronyms like DD, NDD, MM, STP, ECN, DMA, OTC, LP, and so on.
And after hearing all of these acronyms, you undoubtedly reacted with your own, such as…OMG. WTF?
Don’t worry if you haven’t seen any of these acronyms yet; you will. They’re all over the internet, so you’re certain to come across one. It’s unavoidable.
When defining forex brokers, a lot of technical language is employed. Some of what you read or hear is likely to be out of date, inaccurate, or even misleading.
For example, you may have heard that there are two categories of retail forex brokers:
Shady / Non-Shady
Now, let’s get serious. Let’s give it another shot.
You may have heard that retail forex brokers are classified into two types:
Dealing Desk (DD) brokers
No Dealing Desk (NDD) brokers
Let’s diagram this out:
Two “types” didn’t seem to be enough for the retail forex industry’s marketing people, so they decided to employ more acronyms in an attempt to further differentiate forex brokers and make them sound fancy.
New labels were created for each type of broker:
Dealing Desk (DD) brokers
- “Market Maker” (MM) brokers
No Dealing Desk (NDD) brokers
- “Straight-Through Processing” (STP) brokers
- “Electronic Communication Network” and “Straight-Through Processing” (ECN/STP) brokers
- “Direct Market Access” and “Straight-Through Processing” (DMA/STP) brokers
Here’s how the retail forex broker “taxonomy” is popularly marketed:
But there’s a problem…
This is NOT accurate!
Here’s how reality actually looks like:
Regardless of how retail forex brokers portray themselves on their websites or sell their services, there is only one “kind” of forex broker for retail traders.
The most intriguing aspect is that forex brokers are NOT truly brokers.
Have you noticed that the term “broker” is not utilized on the websites of many so-called “forex brokers”?
Why is this so?
Because, technically, they are not brokers!
There is no such thing as a retail forex “broker.”
Calling a forex broker a “broker” is a misnomer, which is defined as a “wrong or misleading name or designation.”
What is a “forex broker” if it isn’t a broker?
It’s complicated
But don’t worry. Our goal is to assist you understand what forex brokers are and how they work.
In addition, to help illustrate what a forex broker is, read all of our articles about forex brokers.
Next Lesson: Is The Forex Broker a Legit Company?
