Difference between forex dealer and trader

Broker Vs. Dealer.

2. The Securities Marketplace.

4. Market Maker Responsibilities.

The term broker dealer actually refers to the two capacities in which a firm may act when executing a transaction. When a firm is acting as a broker, it is acting as the customer’s agent and is merely executing the customer’s order for a fee known as a commission. The role of the broker is simply to find someone willing to buy the investor’s securities if the customer is selling or to find someone willing to sell them the securities if they are buyers. The firm acts as a dealer when it participates in the transaction by taking the opposite side of the trade. For example, the firm may fill a customer’s buy order by selling the securities to the customer from the firm’s own account or the dealer may fill the customer’s sell order by buying the securities for their own account. A brokerage firm is always acting as a dealer or in a principal capacity when it is making markets over the counter.

The Difference Between Forex Brokers And Dealers.

Forex Brokers And Dealers – What Is The Difference?

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The Difference Between Forex Brokers And Dealers.

Do you know the difference between a forex broker and a dealer? Did you actually know about dealers in the first place? No, well the majority of so called forex brokers are actually dealers who are trading against you.

Most traders have no idea who they are actually placing their trades with. They assume that all brokers are the same. In fact, the vast majority of traders are in fact trading with a dealer when they thought they were utilising a broker. In addition, most traders don’t know the difference between brokers and dealers anyhow.

What Are Forex Brokers?

Brokers are what currency traders think they are. They will organise trades on behalf of their clients, the traders. This is the main difference. Dealers trade with and against their clients. Brokers are middlemen who will try to match the buy and sell orders from their clients to other clients buy and sell orders. It is similar to an estate agent attempting to sell a property for a client to another client who wishes to buy a property.

There are several benefits that a broker offers their clients.

• Firstly, there are clearance and settlement issues. A broker will guarantee that there is trust and creditworthiness between the two trading parties. This means that trades will actually be settled and also there is no need for traders to check every other trader’s creditworthiness to make the exchange. This would be impossible without the broker.

• A second benefit is that the broker has access to and far more importantly have established connections and affiliations with liquidity providers and market makers. These relationships with banks, financial institutions and dealers mean that the broker will get preferential exchange rates that they then pass on to their clients, the traders. The banks etc. like the fact that the broker sends them large amounts of buy and sell orders that will be fulfilled.

• Another benefit that a broker presents is that they can offer very tight spreads. Because they have relationships with so many liquidity providers, they can take the best bid and offer prices from these liquidity providers and offer them to traders, meaning tighter spreads, and less costs to the trader.

• The last problem a broker solves is that they will find and match an order from one trader to the order of another trader very quickly because they have so many connections. It is vital to get the order fulfilled as quickly as possible because the trader could suffer financial loss.

The broker doesn’t make as much money through the spread as a dealer does but they have to make money somehow and they do this by charging commissions.

For instance, they will charge $6 per standard lot $100,000 to buy and sell trade so that’s $12. If the spread was .5 of a pip, that would be another $5. This means that the total cost of the trade is $17.

A dealer doesn’t charge any commission per trade but the spreads are much wider. If the spread was 3 pips then a standard lot of $100,000 would cost the trader $30. The difference between the costs of the trader and dealer being $13 per full transaction.

There aren’t many true forex brokers in the market for the retail trader, ( although they seem to be becoming more common nowadays ). Most are dealers. Finding a true broker means doing quite a lot of researching. You will have to check to see if the “broker” is an ECN, an (Electronic Communication Network), or an STP (Straight Through Processing). Both are NDD (Non Dealing Desk) brokers meaning that they do not trade with and against their clients but match clients with clients.

What Are Dealers?

The vast majority of amateur forex traders use the services of dealers and not brokers. Dealers are also known as liquidity providers and market makers, which you may have heard of.

Dealers are not brokers. They are traders that trade with their clients (other traders), by buying low and selling high to make their profit. Brokers and dealers alike need clients to utilise their service, however, dealers take the reverse side of their client’s trade. That is their business model. Brokers do not buy or sell with their clients, they match their clients with other traders.

What are the benefits of a dealer?

Dealers provide liquidity, which gives other traders the opportunity to place their trades when they want, in a prompt manner. Dealers buy low from traders and sell high to other traders and they make their money from the spread, the disparity between the low and high prices. They have to buy from one trader and sell to another trader as fast as they possibly can otherwise they could lose a lot of money. Having to buy and sell almost immediately is a hazardous strategy for them. However, it can be very lucrative for them if they are able to complete the buying and selling without much change in the price but they do rely on filling the other side of the trade immediately. They provide traders with liquidity and almost instantaneous filling of orders.

Dealers only think about themselves and are only bothered about how much money that they can make which inexorably is to the detriment of the trader, their client. A broker’s concern is to assist their clients get the best price they can. A dealer really couldn’t care less whether the trader wins or loses, they are only concerned that their own books are balanced.

Due to many people that are highly ignorant of the facts, the status and standing of dealers is wholly unfounded. There is a deep rooted cynicism and suspicion of dealers that borders on illegality with some folk. A dealer is an adversary that has the capacity to affect your profits one way or the other because of the spread that they generate. Yet, without them, it would not be feasible to trade so they deliver a vital facility.

Dealers, just like brokers, have good relationships with the large financial establishments like banks, and therefore have preferential rates because they supply many orders to the banks and they also prove to be honest and have good financial footings. These privileged rates that they obtain from the banks are passed on to their clients so traders have better rates.

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The Difference Between Forex Brokers And Dealers.

There are two possible careers that you can enter into in the forex market. You can either be a broker or a dealer. But before you decide which career you will venture into, you first need to understand the difference between the two. Robert Peter Janitzek helps us differentiate one from the other.

Brokers organize trades for their clients—the traders. They serve as middlemen who will match thee buy and sell orders from their clients to order clients buy and sell orders. Their job is similar to a real estate agent who sells the property of a seller to another buyer. They do not make money like a dealer. To gain some profit, they charge a commission from their clients.

There are not enough true forex traders compared to retail traders. However, with a little research, you will be able to find one. Just make sure that they are from Electronic Communication Network (ECN) or Straight Through Processing (STP). According to Robert Janitzek , both are non-dealing brokers so they only match client with clients.

Most amateur forex traders utilize the services of a dealer and not a broker. They are also called liquidity providers and market makers. It is worth noting that they are not brokers. They trade with their clients by buying low and selling high. While both brokers and dealers need clients to utilize their service.

Dealers only think about themselves and are after how much money they can make which is to the detriment of the trader. The job of a trader is to help their clients find the price. On the other hand, when trading on the forex market , dealers care less whether the traders wins or loses, what they are after is to balance their books.

Because most people are ignorant of the facts, the status and standing of dealers is completely unfounded. There is a certain sense of cynicism and suspicion of dealers that borders on illegality. If you are a trader, dealers are your adversary that can affect your ability to make a profit one way or the other due to the spread they generate.

However, it would not be possible to trade so they are vital to your job.

Both dealer and broker maintain a good relationship with large financial establishments such as banks and thus have preferential rates. They supply many orders to these establishments and have proven to be honest with good financial footing. They pass on these privileged rates to their clients so they can better rates.

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Difference between forex dealer and trader

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