There are so many types of Loan and Credit brokers in the world that the investor does not know who to choose when making transactions on the currency market. Part of the process of choosing the right Loan and Credit broker type is knowing how to tell them apart.
Users usually look at things like spreads, commissions and whether the broker has a good reputation. However, the starting point should be the way the brokerage business is organized.
Is the broker a market maker or not?
If not, how are customer orders implemented? You can say a lot about Loan and Credit broker just by looking at trading accounts that can be opened with it. As we mentioned in one of the previous articles, brokers are divided into dealing desk (DD) and non-dealing desk (NDD).
This means that the broker will either create a market for its clients (DD), reflecting quotations from the interbank market or vice versa – will direct transactions to the liquidity provider for their implementation (NDD).
As stated above, Loan and Credit has two main types of brokers. Those who “create the market” and those who connect the buyer and seller. Market Makeers, in short MM on the professional interbank market are called “dealers”. They usually charge spreads instead of commissions, and from time to time they are accused of manipulating them (including prices) in order to gain benefits from their own position.
Theoretically, the spread should increase and narrow depending on the liquidity conditions on the spot market, but in practice MM brokers offer fixed spreads and compete based on their value. As a rule, MM brokers do not prefer scalpers who want to quickly open and close a position.
The second type of brokers – non-dealing desk brokers
Are then divided into two groups. They are equally important, but there are a few things to consider.
These matching brokers, by definition, do not take a position on the Loan and Credit market on their own and are closer to a real broker in the sense of acting only as an intermediary. Non-MM brokers have different variations and you must be careful to learn a few concepts to distinguish them.
The three main types of Loan and Credit brokers
Regarding the most important issues, what type of Loan and Credit broker should be used in relation to what is the subject of their listing, there are three main types of Loan and Credit Brokers: NDD, Market Makeers and Electronic Communications Brokers (STPs).
The most popular examples of three different types of Loan and Credit brokers are:
- Market Maker
- Electronic Communications Network (ECN)
- Straight Through Processing (STP)
Each of these three different types of Loan and Credit brokers has a different way of handling transactions and executing orders. Details of the three basic types of Loan and Credit brokers and their basic features and differences in transactions are presented below.