As a Forex trader you have the ability to choose from a variety of ways to trade currencies online. These methods come in the form of Forex account types, offered by brokers and have different structure and approach in order to cover all
trading styles. The main concept to keep in mind is that all trades end up in a liquidity pool provided by banks, federal reserves etc where buy and sell orders are being matched. If a market has high liquidity all buy and sell orders can be executed easily due to the increased activity. In this article we are going to explore the two main account types (STP and dealing desk), analyse their differences and provide sufficient information in assisting you identify which account type might be best suitable to your requirements.
In Forex trading the main account types offered by brokers are:
1) Dealing Desk: Dealing desk Forex trading is essentially an account which gives the ability to the broker to act as an intermediate between you and the liquidity pool. This also gives them the means in having direct effect on clients' trades, selecting the liquidity they wish to provide and create the market in which their clients' trade. Brokers that offer dealing desk services are also known as market makers. In this model brokers are compensated in the form of the "bid-ask spread" but in many cases by clients' losses. Dealing desk brokers usually offer low spreads and different offers making them appealing to traders but if you are considering a dealing desk account careful planning in selecting a reputable and transparent broker is necessary. Nowadays most Forex brokers are market makers.
2) STP: All non-dealing desk brokers are known as "STP brokers" for straight through processing. This means that the broker does not act as intimidate between you and the liquidity pool, having no effect on clients' trades whatsoever. STP brokers transfer the trades to the liquidity providers as soon as they receive them leading into faster execution of trades when comparing with dealing desk accounts. STP brokers are compensated by a mark-up on the bid-ask spread according to what the liquidity providers offer, leading into clients having low spreads overall. Another benefit in trading with an STP account is that there are usually no-requotes and news trading is much more efficient. Brokers offer two types of STP accounts, fixed spreads STP and variable spreads STP.
Some offers such as welcome bonus or no-deposit bonus might not apply to STP accounts thus before opening your trading account read the different types and offers provided by your broker and chose the one most suitable for you.
Richard J Broomstick is a financial writer. Everything you need to know about fibonacci at http://fxmoz.com
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