Choosing a forex broker will be the first crucial decision you’ll make as a new trader.
This is why you should always perform due diligence (“do yo DD”) and DYOR.
If you’ve started doing any of your own research on which forex broker to use, you’ve probably come across an alphabet soup of acronyms such as DD, NDD, MM, STP, ECN, DMA, OTC, LP, etc.
And after coming across all these acronyms, you probably reacted with your own acronyms like…OMG. WTF?
If you haven’t seen any of these acronyms yet, don’t worry, you will. They’re all over the interwebz so you’re bound to see them. It’s inevitable.
There’s a lot of technical jargon that’s used when describing forex brokers. Some of what you read or hear about are probably outdated, inaccurate, or even misleading.
For example, you may have read that retail forex brokers come in two types:
Okay, seriously now. Let’s try that again.
You may have read that retail forex brokers come in two types:
- Dealing Desk (DD) brokers
- No Dealing Desk (NDD) brokers
Let’s diagram this out:
But wait! That’s not all!
Two “types” didn’t seem to be enough for the marketing folks from the retail forex industry, so they decided to use more acronyms in an attempt to differentiate forex brokers even further and make them sound fancy.
Under each type of broker, new labels were conjured up:
Dealing Desk (DD) brokers
- “Market Maker” (MM) brokers
No Dealing Desk (NDD) brokers
- “Straight-Through Processing” (STP) brokers
- “Electronic Communication Network” and “Straight-Through Processing” (ECN/STP) brokers
- “Direct Market Access” and “Straight-Through Processing” (DMA/STP) brokers
Here’s how the retail forex broker “taxonomy” is popularly marketed:
WOW! Look at all those fancy acronyms!
But there’s a problem…
This is NOT accurate!
Here’s how reality actually looks like:
Regardless of how retail forex brokers present themselves on their website or market their services, there’s really only one “type” of forex broker for retail traders.
And the most interesting part is that forex brokers are NOT even brokers! 😱
Have you noticed that the word “broker” is not used on the websites of many so-called “forex brokers”?
(And for the ones that do, it’s primarily for SEO purposes to help their website show up in search results on Google.)
Why is this?
Because technically, they are not really brokers!
There is actually no such thing as a retail forex “broker”.
Calling a forex broker a “broker” is a misnomer, which is defined as a “wrong or inaccurate name or designation”.
If a “forex broker” isn’t really a broker, then what is it then?
While the image earlier provides a hint, the answer to this question is like the relationship status that some of you all might’ve displayed on Facebook in the past….
But have no fear. Our goal is to help you learn what forex brokers really are and how they operate.
And to help explain what a forex broker is, let’s start with a story…..