Five Types of Forex Brokers

Five Types of Forex Brokers
By John Russell, About.com

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.

Examples of Retail Market Makers are FXCM , Ifx and Gain Capital.
* Institutional Market Maker

These types of broker are very closely aligned with the Forex market. They have a more direct connection than most Retail Market Makers. They are very suitable for beginning traders, but usually require large amounts of money for direct access to the interbank market.

An example of an institutional market maker is FXALL.
* Institutional Forex

Institutional brokers are directly connected to the Forex market. This consists of a consortium of approximately 200 banks. It also represents nearly half of all Forex trading. This is not suitable for beginning traders since only banks are allowed to participate. If any broker claims to have direct access to the Interbank market, they are committing a fraud since only banks have this type of access.

An example of an Institutional Forex dealer is ICAP.

So, these are the five different types of brokers. Actually, only four types are available individual traders. The most appropriate type of broker is the Retail Market Maker. There are many different types of Retail Market Makers and they are easy to find. However, traders must closely investigate this type of broker to make sure that it offers the necessary services and that it does not engage in fraudulent activity.

Book makers and bucket shops should be avoided because they are not regulated by the Commodity Futures Trading Commission.

Best Times to Trade

The Best Times to Trade the Forex Market
By John Russell, About.com

The forex markets are great because they are open almost all of the time and there are a wide range of currencies to choose from. This brings up an important question.
What are the most active hours for forex trading?

Generally speaking, the most active hours all around are between the London markets opening around 8:00 GMT and end with the markets in the US closing around 22:00 GMT. The absolute busiest time in the forex markets are during the London to US overlap between 13:00 GMT to 16:00 GMT. These are the hours that are the most liquid or when the most traders are in the markets making trades. If your intention is to do daytrading, these are key hours!

What are the major sessions for forex trading?

There are 3 major sessions each day in the forex markets. They are the London session, the US session, and the Asian Session.
The London Session
The London session starts around 8:00 GMT and winds down around 1600 GMT. The currencies that are the most active during these hours are EUR, GBP, and USD.

The US Session
The US session starts around 1300 GMT and winds down around 22:00 GMT. The currencies that are the most active during these hours are AUD, EUR, GBP, JPY, and USD.

The Asian Session
The Asian session is a reasonable quiet session on most days. All pairs are pretty slow moving and it is not a good time to day trade. The only real currency that has noteworthy activity is the JPY and the activity is slow unless a major financial event happens.

Summary

The best hours for trading the forex markets, no matter your method, are during the London and US session overlap. The markets are full of active participants during these hours and the currencies really move. For the most part, even the larger fundamental news comes out during these times. Trading during these hours is your best chance to get in while the market is making decisive moves and it will be your best chance to score quick profits.