Five Kinds of Forex Brokers

The following post is by Moran Faigenbaum. Enjoy! 

When entering the Forex trading field, it is important to learn about the different types of Forex brokers, in order to make knowledgeable choices in your trading and investments. Some Forex brokers are legitimate and regulated by official regulation bodies, while others aren’t regulated and are actually illegal.

Even though different Forex brokers can offer similar services, it is recommended to understand their working methods and policies, because they can differentiate and the trade will be affected as a result. For example, different Forex brokers have different access levels to the market; some are more connected than others.

Here are five types of Forex Brokers:

  1. Institutional brokers – direct access to the interbank market; there are approximately 200 such banks. It is irrelevant for most traders, because it’s unavailable for individual traders. Since only banks have this direct access, if a broker claims to have such access, it is highly recommended to ask for hard evidence.
  2. Institutional market maker brokers – suitable for novice traders. Compared to retail brokers, they have a more direct access to the Forex market, but they require larger trades to grant this access.
  3. Retail market maker brokers – most popular type of broker, and the best option for beginning Forex traders. Even though it’s the same type of broker, the services, methods and policies vary depending on the broker.
  4. Bucket shop broker – isn’t connected to the market, and makes his profit by betting against traders. This type of broker isn’t regulated and therefore isn’t recommended in order to make legitimate trades.
  5. Book maker broker – illegal in the US as well as in other countries. The method of this type of broker is taking spreads to make profit, unlike the bucket shop broker’s method of betting against the traders.