What is the difference between ECN, STP & Market Maker?

There are many significant differences between Market Makers (MM), ECN (Electronic Communications Network) brokers and STP (Straight Through Processing) brokers but in order to fully understand all the differences between these types of brokers traders first need to know how they process trading orders, how they handle lot sizes and more important if they ask for dealing desks or not.

Market Maker

  1. The MM (Market Maker) which is also known as the DD (Dealing Desk) is a unique type of broker because it does not reflect the market in a direct way instead it just quotes prices similar to the pulse of the trading market.

    Any kind of orders entered are processed first internally and never step out towards the market.

    A very good feature of the MM is the speed of the execution without any additional re-quotes.

    The only negative side of the market maker is that any capital gain leaves the broker’s account into yours and any capital that you happen to loose ends up in the broker’s account, this translates into a serious conflict of interest.

Straight Through Processing

  1. The Straight Through Processing is also known as the STP and it represents a technology that does not require any kind of dealing desk because all types of orders are rerouted directly towards the broker’s liquidity providers. In turn, prices are directly executed on the bid or ask rate provided by the liquidity providers.

    In this specific case, the liquidity providers are the big banks, hedge funds, and investors that take the role of counterparties to each trade. In most cases, the STP broker incorporates a liquidity pool which is represented by many liquidity providers that are in competition for the best bid/ask spreads.

    In other words, STP means that the broker acts exactly like an invisible connection provider between the user (the trader) and the financial market.

    A nice feature of the STP is DMA which stands for Direct Market Access, this means that a broker is channeling the client’s orders directly to their liquidity area, therefore, orders are used at peak efficiency with the best prices with just a small mark-up spread.

    Another positive fact about the STP is that there is only a minor, insignificant, conflict of interest because of the high accuracy of the prices.

Electronic Communications Network

  1. The Electronic Communications Network is also known as the ECN and this is the place where brokers let you gain full access to the trading market, therefore a reliable ECN broker grants you the possibility to see the real prices of the trading market without any kind of filters and also presents them in the right order.

    It is here where you trade with other traders and financial institutions. An important fact worth remembering is that you never get the option to trade against your own broker.

    Some time ago the MetaTrader4 ECN seemed a bit too excessive as a matter of fact the initial reaction to this innovative concept was that it is too good to be true thus it was deemed impossible by many market participants. This type of broker is considered to be very ingenious because it provides a more direct approach.

    The STP and the ECN brokers are similar in many ways but the main difference between them is routing because the STP can pick a different liquidity provider out of their liquidity area, while the ECN behaves more like a hub. This hub acts mostly as a very efficient and dynamic liquidity source because it is backed up by banks, hedge funds, and other significant market members.

    A nice feature about this is that there is absolutely no conflict of interest, but it does guarantee fills and the smallest possible lot is 100,000 and it also involves a commission.

Ending ideas

  1. To put this into a nutshell you can make money easily and consistently with MM (DD), ECN, and STP brokers without having to be tensed about any kind of problems, but it is worth mentioning that a MM market maker broker can bring some fluctuations to the profit-making process. A reliable broker will always deploy a serious amount of effort in offering the best services for you.

What are MAM and PAMM?

MAM and PAMM are two account management methods that allow managers to directly administer several accounts at once from a single terminal without having to create an elaborate investment fund.

The profits and losses of these two methods of management are distributed evenly among the managed accounts. These accounts are connected directly to the account manager’s main account therefore all trades are made instantly by the manager and the results of the trading actions can be seen in the clients’ accounts summary.

What is a PAMM account?

  1. The Percentage Allocation Management Module, also known as PAMM, is an account that features a simple management module that splits the size of trades in accordance with an allocation percentage. This is a simple yet highly efficient solution offered by many professional Forex brokers in order to ease the access of investors and fund managers. With the help of a PAMM account, a trader picks if his account can be managed by one or more managers simultaneously.

    PAMM is considered to be a very smart method of conducting management actions over several accounts on behalf of clients by investment managers.

    This type of system is usually simplified with the help of a broker that takes a certain amount of funds from the investor and continues by enabling the account manager to deploy specific trading services: manual or automated. Combining these two methods ensures a greater chance of success for all the parties involved in the trading process.

    A PAMM account is considered to be the main account and it incorporates a monetary capital that is equal to the sum of all the sub-accounts.

    There is an option where all trades are automatically duplicated in the sub-accounts based only on a strict predefined percentage. There are, of course, some exceptions in which the managers of the accounts are not entitled to the entire array of trading actions, or they only act with only a limited number of actions. As a safety measure, there are some cases where the investors are the only ones capable of making deposits as well as withdrawals.

What is a MAM account?

  1. A MAM is also known as a multi-account manager and it shouldn’t be mistaken for the MetaQuotes multi-terminal system, which, in comparison to a MAM account has many limitations. A MAM account enables its customers to make use of an allocation method, this method is similar in many ways to a PAMM account, but it grants a better dexterity in allocating the trades and risk adjustments based only on the type of risk profile.

    A manager can simply share trades on a predefined basis and this means that he can configure the number of traded spots by each and every individual account. This fixed allocation technique can also be done using a Lot Allocation Management Module also known as a LAMM account.

    The manager also has the ability to modify the amount of leverage value on the accounts and this comes in only when the users demand a bigger level of risk.

    The multi-account manager accounts are specifically designed for account managers and it enables them to modify the level of complexity as well as the value of potential returns. This action can be made by assigning higher leverage to some sub-accounts.

    Other efficient measures also include adjusting leverage as well as a risk-management option on various sub-accounts, this in return offers a lot more flexibility and choice on the trading markets. A lot of caution needs to be taken here because changing the risk levels can be extremely dangerous for the account, but it can also generate a significant amount of profit.

    In short, the multi-account manager is perfect for investors that use a high-risk tolerance which definitely requires great knowledge of the market fluctuations.

Ending ideas

  1. It is a well-known fact that most Forex traders often turn to the advantages of investing in a well organized managed account after failing themselves on the market.

What is a Liquidity Provider in Forex Brokerage?

One of the most significant elements in the complex world of trading is the existence of the liquid market which opens the path towards many profitable transactions. The Forex trading market falls directly in the middle of this general rule, therefore having greater liquidity in a market makes all of the transactions flow more smoothly and the prices are even more competitive.

Due to the sheer size and volume of the Forex market, the liquidity has absolutely no equal in any other capital market in the world. From only a first glance the foreign exchange market presents a daily transaction volume of over six billion USD.

The liquidity usually can be seen in the exotic, major and minor shared currency pairs, which, to a certain extent, can still experience some liquidity issues usually when unexpected news events appear or important economic data releases shake and stir the market, therefore, causing dealing spreads to widen more than anyone can anticipate.

Liquidity providers explained

  1. A Forex liquidity provider is an individual or an institution that acts exactly like a market maker in the Forex exchange market. A professional market maker is meant to act two roles: as the buyer and as the seller for an asset class or exchange rate to create and ensure equilibrium.

    A very important role is played by those who provide liquidity to the Forex market, they are often called liquidity providers and their job is to act on the trading spot as an efficient market marker that makes exchange rates quotations for others. Besides liquidity providers, other market participants are also able to take a significant role in increasing or decreasing the market liquidity by boosting and enhancing the overall trading volume with their own transactions.

What Does Liquidity Mean?

  1. Defining liquidity in the financial and investment market is very simple and it generally refers to the actual reaction speed of an investor, namely, how fast or how slow can their investments be turned into money. For instance, an acquisition or a sale of a certain stock usually takes a longer time to complete, while the usual Forex transaction takes less time to complete which, by far, is much more efficient.

    Another solid example of a trading market with a low liquidity value is the home and real estate market mainly because the normal transaction always involves more than three to five days required for the mandatory settlement period to complete, but there are some cases where the real estate transactions take entire years just to complete.

    Although there are times when some abnormal liquidity conditions may appear in the foreign exchange market these times are short and disappear fast mainly because the vast majority of transactions are brought to completion very fast.

    The huge amount of currency market liquidity enhances the competitive behavior of the participants, therefore, there is a direct influence over the spreads, and stress is placed on the market if it is able to absorb big trading orders without affecting the robustness of the market.

Who Provides Liquidity to the Forex Market?

  1. The notion of liquidity provider is generally used to make reference to a market maker, but, there are several other types of Forex market participants who provide liquidity to the trading market by increasing the volume of transactions, here are some of them:

    • Global or central banks;
    • Major commercial bank;
    • Big investment banks; 
    • Multinational corporations;
    • Hedge funds;
    • Foreign investment managers and supervisors;
    • Retail Forex Brokers;
    • Retail traders;
    • Individuals with a high net worth;

    Shared currencies and currency pairs usually include market makers, HFT (also known as high-frequency traders) as well as speculators who greatly contribute to liquidity.

    The Forex trading market also has a lot of extremely active participants.

Ending thoughts

  1. We need to make sure your clients can legally become forex traders. It is important to clear up the legal matters for each custIt is easy to conclude with the idea that the main role of the liquidity provider is very important because it ensures better price stability by taking solid positions within currency pairs which can be off-balance with another market maker, therefore creating a balance between trades and market participants.omer as soon as possible so that they can get started with the trading process and you can benefit from having multiple traders on your platform. 

    With fewer traders on your website, it is possible to handle the KYC department on your own, but with time, you will need a professional to review legal documents as quickly and as effectively as possible.

    Customer Relation Management (CRM) is a very important part of being a Forex Broker because you are ultimately creating a platform to simplify trading for Forex traders. This is why your clients should be able to get in touch with your team, resolve issues, and get back to trading as soon as possible.

    You don’t need a physical office when you just start off but it does help to have an authentic workplace and a smooth customer management team once you start getting more customers. 

Here Are 5 Common Problems Faced By First Time Forex Brokers

It may be incredibly rewarding to become a broker. When we look at successful individuals out there. We often forget about the problems they may have faced when they started off.

Forex brokers have to face many problems when they set foot on this journey. In this article, we will look at the 5 most common problems faced by novice brokers.

Choosing The Right Forex Broker CRM

  1. If you want to take your brokerage to new levels of success, you must invest in a concrete Customer Relationship Management (CRM) system.

    Since many industries require a CRM, there are many software out there. However, we suggest using a CRM system built especially for the Forex industry. 

    The Customer Relationship Management system should maintain customer forms, grant them permission to trade as soon as possible, it should contain the number of traders, number of trades made, profit and losses. If you are working with Introducing Brokers (IBs) your CRM system must maintain records about them. The number of traders they have introduced to your brokerage, the number of trading accounts they manage etc.

    CRMs need careful consideration. We suggest you take time to build your brokerage goals and identity and choose a CRM system that best matches your brokerage requirements.

Choosing the Right Jurisdiction

  1. At the beginning of your Forex Career, you must finalise the place where you want to operate from. This is a tricky decision to make because all jurisdictions are not valued the same way.

    Though it is not compulsory for brokers to have a license, all jurisdictions do not allow you to operate without one. Without a license you have fewer opportunities and fewer banks would want to cooperate with you.

    Different jurisdictions have different sets of rules and it is not easy to set up a brokerage anywhere you want.

    In case you want to get a license before starting your brokerage you need to find the best jurisdictions for a license. Ideally, the best place to start a brokerage is one where you will get maximum trading opportunities, it is easier to set up a brokerage and requires lower upfront costs. Banking options are also important.

    Places that require lesser upfront costs often have fewer bankers and traders, while on the other hand, jurisdictions that have higher upfront costs (like getting a license, an office and a CRM) also have maximum trading and banking opportunities. So, it all depends on your budget and time.

Banking Options

  1. Due to the strict Anti-Money Laundering (AML) policies, it has become harder for new brokers to find a banker. The most prosperous places for forex have very strict banking laws. Many banks don’t allow novice brokers to open an account.

    This may pose a huge challenge because it is easier to get a license than it is to get a banker. Please don’t stop your research after you choose a jurisdiction, you must check how easy/difficult it is to open a bank account in the designated area as well.

Time

  1. The fourth thing we read about but do not anticipate is time. Yes, we know that it takes time to get a license but really how much time is too much time? And how much time do you have to spare?

    A forex license can take anywhere between 2 months to 24 months depending on where you are applying. But time is not limited to your license and setting up a brokerage. It takes time to build a forex website, integrate forex technologies, find a banker, set up an office, hire a manager.

    You may have enough resources for an expensive jurisdiction but how long can you handle the upfront costs before making any profit?

    Sometimes, as a novice broker, you may have to wait on things you didn’t expect to wait for in the first place. For instance, we discussed how banking may become a problem if you are a first time broker. There may be holdups in web design, technology integration, and even client acquisition.

Marketing

  1. Effective marketing keeps the forex industry running. Since Forex deals closely with money and other liquidities, it’s harder to gain someone’s trust. Clients won’t simply choose you because you own a brokerage.

    Many traders choose a broker because they’ve heard favourable responses from other traders. Word of mouth remains the strongest form of marketing in the forex industry. 

    Finding your first set of traders is harder because there is very little information out there about you. Traders need a good reason to trust you and with the increasing fraud cases in the brokerage industry, traders stay away from new brokers (especially those without a license).

    Marketing strategies keep changing every few years so it’s very hard to cling on to a trend and hope for the best. This is why marketing is one of the biggest problems for a new broker. Many brokers have already exhausted a lot of money by the time their brokerage is ready for traders. They just don’t have enough to invest on marketing, and that’s when the office collapses before soaring.

    It is very important to build networks even before you become live. If you are a trader transferred broker, start networking with other traders much before you start your own brokerage. If you can create a strong impression, they are much more likely to shift to your brokerage.

  1. So, here are the most common problems faced by a novice forex broker. However, once you embark on this journey and stay on it despite the hurdles, they will be less frequent in the years to come. All the best!

Here Are 4 Must-Have Applications To Make Forex Brokerage Effective

As a Forex Broker, you must manage all client accounts, make sure they are eligible to trade, and have a favorable environment for Forex trade. Traders must have easy access to all trading facilities and liquidities available to them.

It is not possible to handle all company processes manually hence you must have a few applications in place. Here are four must-have applications to make Forex brokerage effective.

CRM

  1. The forex brokerage industry has many intricate functions. Managing registration forms, KYC forms for traders, systems, and licenses for Introducing Brokers (IB), etc. A proper customer relationship management (CRM) ap must be in place for all functions to run smoothly.

    Many companies need a CRM system, so it is always best to use a CRM system built especially for the Forex industry.

    A CRM system from Starting Brokerage, for instance, has been made especially for brokers. It has set recording systems for trading groups, trading accounts, etc. The moment you enter the backend, you’ll know the number of deposits, etc. It allows you to manage your client data better and make sure everyone is benefiting from your environment.

Trading App

  1. Brokers must integrate good trading platforms on their website/phone applications as well. After all, traders associate with brokers because they want to trade and make most of the money they must spare. A good trading app will attract more traders to your platform.

    We would suggest integrating more than one trading app on your website so that traders can pick an application of their choice. However, all applications must have some important features in common. For instance, it must teach traders the fundamentals of trading, giving traders access to resources, and, when they are ready, they must have access to the live market, spreadsheets, drawing tools, show real-time price movements, Forex news, etc.

    Many brokers provide their traders with MT4 and/or MT5 trading platforms. These platforms are perfect, not just for traders but for brokers as well as allow brokers to view and manage all trading operations.

MT4 & MT5

  1. MetaTrader or MT4 and MT5 are the most popular trading platforms out there. Even the most novice, an inexperienced trader has heard of MT4 and MT5 which is why we suggest having at least one of them, if not both.

    MT4 was developed in the year 2000 and it instantly changed the way people trade. It has become user-friendly with years of feedback and development.

    They come with interactive charts and a flexible user interface. Traders can customize their interface according to their trading needs. Traders also get many drawing tools to make their own charts.

    There is very little difference between MT4 and MT5. Since MT5 is newer it has a few extra tools, but as a trader, MT4 will work just fine.

    Brokers benefit from applications like MT4 and MT5 as well. Of course, since most traders use these applications, you can get more clients just by integrating MT4/5 on your website. However, it is more than just providing another trading option, it can extend to a CRM system just for you!

Educational App – Trading Game

  1. When you start your own brokerage, you will have many novice traders who want to exchange commodities. If you can teach a new trader how to trade, they may stick to your platform for life!

    Educational apps are helpful as they encourage people to understand the trading industry and make it fun at the same time. This is why we feel you should integrate at least one educational application on your website.

    We chose the trading game as one of the most important educational apps for novice traders. It breaks down complex concepts into simpler segments to help most inexperienced traders in the world. 

    The Trading Game quizzes you at the end of every game. Once you pass the quiz, you progress to the next level. When you pass all the levels you can enter the trading market.

MAM/PAMM

  1. Multi-Account Manager (MAM) or Percentage Allocation Management Module (PAMM) is one and the same applications. It allows brokers to give their clients a little more flexibility. 

    As we already know that some traders are more experienced than others. MAM or PAMM allows traders to attach money with an expert trader who manages one or more trading accounts.

    The experienced trader is granted a limited power of attorney which means that he/she can only use the money for trading purposes and not withdraw funds.

    MAM and PAMM allow small traders frequent success rates, and it enables large investors to make bigger investments which are the sum of smaller funds from many traders.

    As a broker, having a MAM and PAMM system in place you provide more opportunities to traders and encourage a sense of community. This increases your profits too and provides an incentive for novice traders to join in.

  1. So, here are 4 applications that we feel every broker must-have. This is apart from having a smooth website. All brokers pay a lot of attention to the website quality and speed but when we come to applications, we are at loss.

    We hope this list helps you make a better decision for your company!

3 Best Affordable Forex Broker License Jurisdictions Around The World

It is true that a Forex license can increase your online and offline presence. But all Forex licenses do not have the same value and are certainly not priced the same way. Different jurisdictions have different opportunities and drawbacks. This is why you should do your research before you apply for a Forex Broker License.

How to choose the jurisdiction for a forex brokerage license

  1. Before we discuss the best jurisdictions around the world, it is also important to know what factors go into picking a jurisdiction. This will help us add more value to the list below.

    Four things go into picking a forex broker license jurisdiction, namely:

    • Money
    • Time
    • Banking Options
    • Reputation
    •  

    A cheap license may not always be a good choice. You may apply for it to save money, but the license may be cheap because you might not get the banking solution for that, which is critical now. Hence you must consider all factors before picking a licensing jurisdiction.

    Secondly, with so many competitors in the forex market, there are many fraud license providers out there. So, if you get a deal where the license is cheap and easy to get we would suggest you conduct thorough research and check reviews of that place.

    Lastly, because of the new and stringent AML policies, many banks don’t allow funds from individuals if you are regulated & do not follow AML policies. 

    Our experience in this industry has enabled us to compile a list of 3 authentic & affordable jurisdictions to get a forex broker license. Here’s why we think these places are worth your purchase:

1. Seychelles

  1. Seychelles includes more than 113 islands and is located in the Indian Ocean on the east of Africa. Being in the Asian, African region, a license in Seychelles is not as expensive when compared to other jurisdictions like the BVL.

    A contract for Difference (CFD) functions are highly regulated in Seychelles but it remains one of the most popular jurisdictions for CFD brokers.

    Without a license, there are few opportunities available in Seychelles. However, with a license, you can buy, sell and trade liquidities, manage client investment portfolios, etc.

    This license is used by many reputed forex brokers.

2. Mauritius

  1. Mauritius has recently gained a lot of popularity amongst forex brokers largely because of the number of traders, bankers, and investors operating from this area. The license costs are fairly reasonable and they have imposed strict confidentiality laws. Therefore making it one of the safest places for a Forex license.

    The best thing about getting a license in Mauritius is that they have a favorable environment for Forex brokers. Fewer taxes are imposed on buying, selling, and trading Forex commodities and there are so many options so choose from.

    There aren’t any major drawbacks to getting a license in Mauritius. The waiting time for a Broker license in Mauritius is 6-8 months, which is fairly quick. Once you have a license you can reap the benefits of Forex trade with low taxes.

    Many reputed forex brokers got the license in this jurisdiction.

3. Labuan

  1. Labuan is third on our list because it is fairly easy to set up a brokerage in Labuan. Once you are eligible for a license, it would take you 3 – 4 months to get a broker license. However, in order to become eligible, you must take a test and produce documents to prove that you have enough capital to start a Forex Broker in Labuan.

    Though it is not compulsory to issue a broker license, it is mandatory for brokers to maintain 300,000 Malaysian Ringgit in all their reserves.

    The costs to set up an office and operate as a broker in Labuan is much cheaper than other parts of the world. This is why many novice brokers choose to operate from Labuan. Once you become a broker in Labuan, the opportunities are endless. 

    The rules and regulations imposed on brokers make it a safe environment to trade. There are enough traders and bankers willing to work with brokers and the taxes on Forex trade is much lower than other countries (approximately 3% of all audited profits).

  1. So, here’s our list of three jurisdictions that we feel are the best for a forex broker license. Licenses in first world countries like the UK, Cyprus & Malta are quite popular. However, they are really difficult to attain and are quite expensive.

    The jurisdictions above are unique in their own ways and quite ideal for a first-time broker. Some are more expensive than others while others take a little more time to get in your hands. 

    At the end of the day, it all comes down to your requirements. What do you need? Do you want to get up and running as soon as possible or do you want to make sure everything is perfect when you cut that ribbon!

5 Steps To Becoming A Forex Broker

So, you have been a Forex trader for a while and now you feel ready to take the next step in the Forex Industry. You want to become a Forex Broker. Well, here are 5 steps to becoming a Forex Broker.

Forex brokerage is gradually on the rise and though more people are entering the Forex industry every year, there is still a lot of potential in the Forex market. You can become an excellent Forex broker and rise above your competition by following the simple steps below:

1. Licensing

  1. Although it is not compulsory to have a license, it greatly improves your chance of building a clientele. Begin by registering your company and get a Forex Brokerage license. The thing is, all licenses are not the same and are definitely not viewed the same way.

    However, you can get started as an unregulated broker to start with & then you can proceed to be a regulated broker by getting a license.

    Different licenses will give you access to different forex markets and not all markets have the same power. 

    There is a comprehensive point system in place that allows us to understand the value of each Forex Broker license. For instance, most authoritative brokers will have 100 points. These include licenses obtained from Government agencies. Licenses obtained from financial markets are rated at 50 points and licenses given by market regulators with very little influence are ranked at 10 or below.

    The better your license the higher chances you have to be successful in the industry. Clients naturally want to work with the best brokers. However, other factors may also influence your choice of market and licensing.

    Conduct thorough research and apply for a license in the jurisdiction that would benefit you the most. Spending time on the licensing process would ensure you are on the right track before you even get started. Since many of your competitors won’t have licenses, starting with a license will make you a better choice among traders

2. Liquidity

  1. Once we have all the instruments we need to get a liquidity service provider in place so that traders can see all the forex commodities that are in the exchange process. Once they place orders it is in our hands to execute orders on time.

    Liquidity refers to the amount of money flowing in and out of the market at any given time. Or the number of traders trading in the forex industry as we speak. Traders on your website must be able to track liquidity and currency rates so that they can trade accordingly.

    Setting up liquidity is an important process and one that requires a significant amount of research. It enables traders to see prices of different commodities and it also allows you to execute orders as and when you get them.

    You must pick a liquidity provider who can efficiently execute orders on time and keep your customers satisfied. The more satisfied they are the more likely to stick to you.

3. Easy - To - Use Trading Platform

  1. In this third step, you get to use your own experience as a trader. Which brokers did you work with in the past and what were they lacking?

    Your website must contain your license information, security information, contact forms, easy to access signup forms, account set up methods, payment methods, and a beginner’s guide to Forex Trade.

    Though you can hire any designer to build a website, it is ideal to work with a designer who has in-depth knowledge in the forex trade market. A good broker website must provide traders with updated prices. It is impossible to update prices manually hence they should be able to integrate your website with various foreign exchange instruments.

    Different brokers provide their traders with different instruments and if you really want to increase your clientele consider including more trading instruments that are not commonly available in your market.

    For instance, if your competitors do not provide devices to calculate CFDs, consider being a sole provider. You may have fewer traders using this instrument but since you are the only broker providing it, it gives you a monopoly. Customers that come to you because of your CFD instrument may become your customer for life.

4. Do You Know Your Client (KYC)

  1. We need to make sure your clients can legally become forex traders. It is important to clear up the legal matters for each customer as soon as possible so that they can get started with the trading process and you can benefit from having multiple traders on your platform. 

    With fewer traders on your website, it is possible to handle the KYC department on your own, but with time, you will need a professional to review legal documents as quickly and as effectively as possible.

    Customer Relation Management (CRM) is a very important part of being a Forex Broker because you are ultimately creating a platform to simplify trading for Forex traders. This is why your clients should be able to get in touch with your team, resolve issues, and get back to trading as soon as possible.

    You don’t need a physical office when you just start off but it does help to have an authentic workplace and a smooth customer management team once you start getting more customers. 

5. Customer Retention

  1. It is true that your highest paying customers will be forex traders for life. You benefit from having them as your customer and it is in your best interest to make sure they remain with you. So the last and perhaps the most important part of becoming a successful Forex Broker is to ensure that your customers remain with you.

    If you carefully put in place all the above criteria, it would inadvertently retain customers. Customers understand when you are going out of your way to give them the best service and they would naturally stick to the most trusted broker in the market.

    Please provide easy to access phone numbers so that your customers can get in touch with you in case of an emergency. After all, word of mouth is still the most powerful means of marketing. Clients must feel valued for them to stick around and introduce more of their trader friends to your business.

  1. So, here are 5 simple steps to becoming a forex broker. The key here is to make it a fruitful environment for traders to take part in foreign exchange. We wish you all the best to become a forex broker and we hope to hear your success stories very soon.

What is A-Book & B-Book in Forex Brokerage

A-book or B-book? What is all this fuss about? People are confused whether they are on A-book or in B-book while investing on Forex. Which one is safer? Since there is no mention whether you are in A-book or the B-book, is there a way to know you current status in your Broker’s records? And does it really matter whether you have ended up in the A-book or the B-book? In this article, we will answer all these questions but first let us understand what Forex is and what do these books mean. Let’s get started then.

Forex which is abbreviated for Foreign Exchange or the Foreign Currency Exchange market is one of the most important of all trades happening all around the world. The returns are high and there is a reason for that. The simplest way to understand the importance and frequency of trade in Forex is by taking an example of foreign trade. Suppose you are an Indian and you want to go on a tour to Australia. Once you reach Australia, you need to pay your hotel rent, transportation and food charges in Australian currency. And to do that, you need to get your Indian currency changed to the Australian one. Of course because you can not pay in INR. This is where foreign currency exchange happens. This is the simplest example to understand the implication of it. Now think about the magnitude of international trade and tourism happening in an entire month or just even one day. It is huge and so is the benefits of investing in Forex. One huge thing about Forex is that there is no central market for the transactions. Everything is done electronically and between traders and brokers and the liquidity market and this makes it even more intriguing and rewarding in the same place. Now, when you start investing in Forex, you usually have a broker to take care of all your investments and orders.  Whatever you buy/sell, you end up in the entry book and this entry can be in any of these two books: Book A or Book B. And that is what we will talk about today.

Book-A or The Simple Way

  1. Trades ending up in Book A mean that they go passing through the market and then certainly by a bank. All you transaction first go through the bank which are the “providers of liquidity” in the market. In simple terms, when you trade, your broker places an order on your behalf to the bank. The bank then makes entries and checks with their vault status and then your trade order is filled. This is generally the normal way of trade and almost everyday general business trade is done this way. In a nutshell, when your broker sends your trade order to a bank, it is called a A-Booking. The broker has generally a low profit making capacity through Book-A entries.

Book-B or The Closed Path

  1. Let us come to the much controversial Book-B now. As stated above, book-A entries go through the Bank or the liquidity provider and is generally the way of trading. Book-B however holds a different way of doing things. When you place an order through your Forex broker, your entry is kept in the broker entries and it doesn’t seen the entries of the bank. In simple terms, the trade entries are closed away at the brokerage level only. Wait! What? Is that even legal?

    Well, it certainly is and you will be surprised to know that many brokers transfer the trade to Book-B. Why? More profits for the broker obviously. In this side of the story, your broker is betting against you. If you win the trade, your broker considerably makes a loss. Let us elaborate with the previous example. Suppose you are fascinated with the growth of Australian Currency and you have decided to invest in it. Let’s say you buy 20 units of AUD at 50 USD and your broker puts this transaction in Book-B. This means that your trade is never sent to the market where it gets its liquidity from. In other words, your broker is betting against you. If you lose, he will make a profit and vice versa. So when you buy 20 AUD, he has to sell 20 AUD from his account. This kind of trade can be greatly beneficial to the broker. Studies show that for a profit of 5000 USD  made through trades in Book-A, brokers can easily make up to 20,000 USD or even more if they kept that trade in Book-B.

    But again, is it legal? After all, your order is not going to the market. Well, to be clear, yes, this is entirely legal. All regulated brokers whether under FCA, ASIC or NFA are given a licence called the Market Maker’s License. It means that they are officially entitled to purchase directly from the market on behalf of the traders and also they have the permission to fill the trades internally.

You might now think “When do my trades are moved to A-Book or B-Book ?

  1. The answer to this is pretty simple. The key lies in risk. If the trade involves a huge amount of money or the account holder has a pretty high sum of money invested, it is only wise to move the trade to Book-A. After all it involves huge risk, which is certainly a big no-no. Then comes the small trades involving a small sum of money and this is where to opportunities lies. An opportunity with low risks and promising profits and this is when your trade is moved to Book-B.

But is there a way to find out if your trade is going to Book-A or Book-B?

  1. Yes, there certainly is. It is hard to tell if your broker moved your transaction to Book-A or Book-B but you can estimate the same using a simple method. Generally entries moving to Book-A take a while, then it is safe to say that your trade has been moved to Book-A. However, if the trade entry is fast especially during press releases, you know what it is. At high volatilities, it is more feasible to do an instant order fill and this is possible only in Book-B and that’s where your trade is directed.

Which one of those is preferable?

  1. Generally you don’t have a choice to select where your trade ends up at. It’s all up to your broker if your trade is going to Book-A or Book-B and honestly it doesn’t matter much. The course of action that your broker takes will decide if he is making profits or not and it doesn’t affect your money that you traded. Many people will be upset with the idea that their broker is betting against their investments but this is totally normal. After all, they also need to make major money. That is why they are brokers after all.

How does the option of a hybrid sound?

  1. Yes, you heard it right. Brokers today are following a model which can be said as a hybrid of both these entry methods. Brokers identify the winning and losing trades and then they accordingly split your trade according to any one of the category. The winning trades are moved to the bank or the Book-A and the losing trades are diverted to Book-B. This ensures that the broker makes profit out of most of the trades happening in the forex. This obviously won’t affect your trades and is only for the interest of the brokers.

Conclusion

  1. Both Book-A and Book-B are a matter of question to most of the forex investors. While the Book-A keeps all the trades that end up at the real market, those trades which don’t see the liquidity market or the bank end up in Book-B. Book A is the traditional entry method while Book-B is certainly more profitable for the broker. A broker can earn up to 60 % more by putting entries in Book-B. While the selection doesn’t concern the investors, the Book-B path is a matter of upset for most people. No one is comfortable with the idea that their brokers are betting against the trade and therefore it is a thing of high suspiciousness to most people. Although there is a way to determine whether your trade is ending up in Book-B or not, there are not much of things that you can do to change that. If you are uncomfortable with the idea of your trade ending up in Book-B, then you can try identifying better winning trades. This way your broker will have to put your trade in Book-A. Forex is a place where you can earn lots and even loose a lot. It is all a matter of liquidity and volatility. Every small news matter and you need to be aware of your trades to make sure that you end up earning profits. As of brokers, well, they now how to make the best out of worst moments too. Cheers.

     

Advantages of Being An Offshore Forex Broker

The recent enormous growth in the Foreign exchange has attracted a lot of people to go with Forex trading. The foreign currency market has become one of the largest markets throughout the world and is currently worth more than 60 trillion USD worth capital. With the recent introduction of cryptocurrency, this number is expected to boom higher and higher as time passes and this is exactly what opens up an opportunity for traders. The growing market and the rising profit-making opportunities are attracting a lot of people to start trading forex, and this is only to get bigger and bigger.

Before you start trading in Forex, you need to make a Forex account and then get yourself a broker who can take care of all your trades. The rules of Forex trading might seem complex to new comers but are actually pretty simple and concise. Now, when you start a Forex trade, you have to make sure that you comply with the rules and regulations set by the Forex Regulation and these rules are different for different countries. Some rules like the Foreign Account Tax Compliance Act of USA puts some of the overly regulated trade rules for the brokers in the USA. In some places, the regulations are simpler to follow and so are the rules laid by the Forex. Normally you can open a Forex trading account from your own country and get a Forex broker from the same. This is how the majority of people trade. But you can always register yourself from a different country to enjoy the benefits that you cannot avail at your country of residence.

In this article, we will talk about the advantages of being an off-shore broker and how you can earn more if you follow the protocol closely. Let’s get started then.

1. Tax Benefits

  1. Some countries have a higher tax rate on Forex trades, and this is a nuisance for most Forex brokers. They have to pay a lot in taxes, and it becomes really hard to keep up with the profit margin in a market that is full of uncertainty. One way to cut down on your tax expenses is by operating a Forex brokerage from another country. Being an offshore Forex broker can help you save thousands if not lakhs of your profits. You need to ensure that you have an offshore bank account and that the requirements for the offshore account are suitably met. It is also advisable to take a look at the pros and cons of opening a Forex brokerage at a country. It is usually seen that a country offering low brokerage tax might have other operating expenses which will eventually reduce your profits even further.

2. Restrictions On Leverage

  1. One tier countries like the USA have certain restriction on the leverage (ratio of a company’s debit to equity). In simple words, there is a restriction on the amount of money that the firm can draw from the market. This type of market is generally closed, and it offers a relatively low number of opportunities to earn profits. Some countries, however, have subsequent lesser restrictions on the amount of leverage. This maximizes the money borrowing capacity and in turns provides the necessary liquidity to the company. In such a case, there are higher chances of making profits. Different countries have different limitations. Therefore it is to be ensured that your interests are met accordingly. It is not wise to select an account based on leverage itself.

3. Exposure & Experience

  1. Earning profits and running a successful brokerage is one thing and getting exposure in a completely different thing. Experience and exposure to market are the two important thing that decides a broker’s impact. While being an offshore broker, you are more likely to get more exposure than your counterparts. Handling clients of different regions will give you the confidence that you need in the Brokerage career. Also, exposure to a whole different market place with varying rules can help you learn more about how the market operates and will definitely make you better with time. These things can not be replaced by a theoretical material, and therefore broking in a foreign place can defiantly aid your career in the long run.

4. Legal Compliances

  1. Generally it is seen that opening a brokerage in a specific country is a tough thing to do. There are just too many rules and processes which makes the whole process very hectic and time-consuming. Not only this, the same nature of these rules make it tough for brokers to take care of their trades in a simple manner. While it is a problem in some countries, in others the law makes it easier to open an offshore brokerage. Apart from an easy and simple approach to opening a brokerage, the broker gets various offers and relaxations which might be tough to get in some countries. Not only that, by becoming an Offshore Forex broker, leverage restrictions are eased and is not limited to just that. Having an offshore forex account can essentially remove any tax restrictions and can make brokerage easier for you.

5. Clients

  1. One thing that is definite after operating an offshore brokerage is the number of clients. While dealing with your own country, your client base might be just limited to few, and it might also be tough for you to increase your client base. However, this seems to change once you become an offshore forex broker. Not only you have your usual clients, but you are also presented with multiple opportunities to increase your client base by adding people from the offshore company. This way you can get a lot of clients and that too with different outlook and approaches which can make the brokerage more interesting and profitable. The one thing that comes with this is the experience you get. With more exposure and reputation, your client base will go on increasing and so will your profit making capacity.

Conclusion

  1. These are some of the advantages of being an offshore Forex broker. The benefits are lots but so are the hindrances. Although becoming an offshore forex broker is easy, there are many aspects to it as well. You need to take care of the rules and make sure that you comply with all of them. Now, these rules will obviously be different from your residing country, and therefore it is critical that you understand each of them and make sure nothing is missed out. There are also challenges with opening and maintaining an offshore bank account, and this too needs care and considerable effort to make sure that everything is alright. The tax benefits might sound attractive in some places. However, there might be few regulations that can lower your net profits, and therefore you should be extremely careful while selecting the country of your choice. It is very important that you research each and everything about the country’s forex rules and understand them clearly. Also, you should keep in hold the relations with the offshore bank and the clients as well.

    Opening an offshore Forex brokerage might be secure, but there are indeed a few things that you should know and take care of. Profits and ease of operation should go hand in hand, and therefore it is advisable to know and understand every aspect of forex before you begin. Cheers.

     

Difference B/W Dealing Desk Brokers & Non-Dealing Desk Brokers

Brokers are people who buys and sells goods or assets for other people. People who arranges a transaction between a buyer and a seller for a commission when the deals goes through is also called brokers. There are also brokers known as Forex Brokers, these guys are the ones that deal with buy and sell goods, services, and assets or such dealings which make use of foreign currencies. They are basically the ones that deal with Forex trading, which is also more popularly known as foreign exchange. There are mainly two types of Forex Brokers, Dealing Desk Brokers and Non-Dealing Desk Brokers. These are the two types of Forex Brokers and today, we are going to look at Dealing Desk Brokers and Non-Dealing Desk Brokers and What is the difference between the two?

To understand the difference between Dealing Desk Brokers and Non-Dealing Desk Broker we must first understand what a Dealing Desk Brokers is and what a Non-Dealing Desk Broker is. So, first let us first understand the concepts of Dealing Desk Brokers and Non-Dealing Desk Brokers are before we carry on.

Who are Dealing Desk Brokers?

Dealing Desk Brokers are more commonly known as Market Makers or DD for short. These, Market Makers, are forex brokers that make off of clients by the use of spread and by also providing liquidity. They are known as Market Makers because of the fact that they literally create markets for their clients. They handle both the buying and selling aspects of the trade and fulfill both the buying and selling wishes of their clients. This might seem like there might be a conflict of interest but there really isn’t such a thing because these guys are not different to the decisions made of an individual trader and they also control the price of the orders made. They also don’t follow the interbank market rates, but the rates that most Dealing Desk Brokers provide are very close to that of the interbank market rates. 

What basically happens is that your Dealing Desk Broker gets trading order and he or she looks at the Winning Trades and Losing Trades of the client. The winning trades could be his offset by matching with other clients or passed on to liquidity provider. And the losing trades could be the countertrade by a broker and it becomes a profit. So, if you place a trading order to buy $1 then the Dealing Desk Broker will look at all the selling trading orders that are available and try to find one matching to your buying order of $1. Or if he can also pass the trades you possess to a liquidity provider, who will readily buy or sell financial assets. 

But if there are no matching orders then what? Then they will take the opposite side of the trade and this would be a higher risk. All the Forex Brokers and Companies have their own risk management levels and you must talk to your Forex Broker to find out more about this. So, basically a Dealing Desk Brokers is a person that passes his or her client/s orders through the dealing desk.

Who are Non-Dealing Desk Brokers?

Non-Dealing Desk Brokers are of two types and are known as ECN or Electronic Communications Network and STP or Straight through processing as well. These guys are basically the ones that does not pass his or her client/s orders through the dealing desk. Non-Dealing Desk Brokers are the ones that do not take the other side of the client’s trade and they just simply let the two clients meet together. What they basically do is they get the trading order and go straight through the Interbank Market to Banks, Hedge Funds, Mutual Funds, Other Clients, or even other brokers. Non-Dealing Desk Brokers are said to have lower spreads compared to Dealing Desk Brokers. But this cannot be considered as an advantage or even a disadvantage because the spreads are not fix and tend to change. Here, you are the one that has to stay diligent and look up the broker’s record.

As mentioned earlier there are basically two types of Non-Dealing Desk Brokers, that is, ECN or Electronic Communications Network and the STP or Straight through processing. Let us look at what these two types are: –

1. ECN – Electronic Communications Network

  1. ECN Brokers are the ones that take the orders of the client and allow them to look at the orders of the other participants in the ECN and they allow their clients to have a look at the Depths of Market. These participants vary from banks, hedge funds, other brokers, retail traders, etc. It is not easy to get a fixed markup, due to this ECN brokers get paid much lesser compared to STP, that is, their commission is low.

2. STP – Straight Through Processing

  1. STP Brokers are brokers who route the order of the clients they have to their liquidity provider who have access to the interbank market. These guys will have a lot of liquidity providers who quote their own bid and ask price. In the quote you see, the brokers markup will be added which is quite small. Because of this small change in the bidding or asking quote, the STP brokers maintain spreads that are a variable. This is because if a liquidity provider widens his or her spreads then the STP brokers will have to widen them too. Well, there are some who give you fixed spreads, but the majority lies in the Variable Spreads.

What are the differences between Dealing Desk Brokers and Non-Dealing Desk Brokers?

  1. Now, let us get to the main question of this article, what are the differences between Dealing Desk Brokers and Non-Dealing Desk Brokers? Well, before we get to the answer to that question, we must look at one more thing.

    That is, you must understand and realize that whichever type of broker you pick in the end of the day, depends completely on you. You could pick a Dealing Desk Brokers or Non-Dealing Desk Brokers, it doesn’t matter a lot because in the end of the day, everything depends on your capabilities and depends on what type of trader you are. Know this that we can’t say which broker is better, that is, whether the Dealing Desk Brokers or the Non-Dealing Desk Brokers is better.

    Now, keeping that aside let us look at the major differences between Dealing Desk Brokers and a Non-Dealing Desk Brokers. Here, we are going to take Non-Dealing Desk Brokers apart and see the differences between Dealing Desk Brokers and STP Non-Dealing Desk Brokers and ECN Non-Dealing Desk Brokers. This will allow you to understand the concept more clearly.

Differences Between Dealing Desk Brokers and STP Non-Dealing Desk Brokers and ECN Non-Dealing Desk Brokers

1. Spreads

  1. When we look at the differences in spreads among the three we will notice that Dealing Desk Brokers or Market Makers have fixed Spreads and not variable spreads. But most STP Non-Dealing Desk Brokers have variable spreads, while a small margin doesn’t have variable spreads but have fixed spreads. And the ECN Non-Dealing Desk Brokers have an option of either variable spreads for the clients or different commission fees.

2. Opposite Side of the Trade or Liquidity Providers

  1. When we see the differences in whether they take the opposite side of the trade or if they link up the liquidity provider, we can clearly see the difference that Dealing Desk Brokers do not link the client up with the liquidity provider, but they instead take the opposite side of the trade. And STP Non-Dealing Desk Brokers, they act as a bridge between the client/s and the liquidity provider while ECN Non-Dealing Desk Brokers act as a bridge between the client/s and liquidity provider and also to the other participants.

3. Pricing

  1. The pricing is a clear difference when we look at Dealing Desk Brokers and Non-Dealing Desk Brokers. Dealing Desk Brokers give you an artificial quote and on the other hand Non-Dealing Desk Brokers don’t, that is STP give you the price from the liquidity providers in which they add a really small amount for themselves, and ECN give you the price from the client and liquidity provider and other ECN participants.

4. Order Execution

  1. In this we can see the difference in the execution of the orders and you will notice that the orders are filled on a discretionary basis by Dealing Desk Brokers. But on the other hand, STP Non-Dealing Desk Brokers have an automatic execution and don’t allow re-quoting. And ECN Non-Dealing Desk Brokers don’t allow re-quoting either and also have automatic execution, but they also display the Depths of Market to the client, which basically is liquidity information.

    And here are all the differences between Dealing Desk Brokers and Non-Dealing Desk Brokers. This shows you the simple differences between them and as mentioned earlier the choice to go with either one is up to you and in the end and your decision should be based on the fact of which type of trader you are!