How Well Do You Know Your Broker?

Before you start trading, you must first get a reputable broker to carry out your trades for you. A broker is generally a person or a firm that controls your trading account. Besides controlling the account, a broker also quotes the current prices for you and sends all trades into the market. If you do not have a broker to do the trades for you, you would find it very difficult to carry out some tasks. One such firm that makes trading easy is Rakuten Brokers form Rakuten securities.

Brokers are divided into 3 main categories.

  • ECN (Electronic Communications Network) Brokers

ECN brokers use communication networks to match trading orders in order to give you the best prices in the market at that particular time. They are the eyes of what goes on both sides of the market. They will receive different prices from many institutions in the market and then compare them before giving you the best quotes.

An ECN broker makes his money through a commission added on the spread from a provider with the best quote. Let’s take an example. If the provider gives the broker 0.5pips on AUD/USD, the broker then adds his own spread of something like 0.4pips. This means that the trader dealing with an ECD broker will get a 0.7pips spread on AUD/USD. The 0.4pips is the commission the ECN broker earns. This is the only way they are supposed to make their commissions.

  • Market Marker Brokers

These are brokers that control the trading market all by themselves. What this means is they set their own bids and prices. You can even say they have the trading market on the palms of their hands. They will not bother to send any trades out in the market and will do as they please. They dictate how the market will go and basically without them, the trading market would be almost dead. Also referred to as the dealing desk brokers, they are a force to reckon with.

  • STP (Straight Through Processing) Brokers

These are a cross between Market Markers and ECN brokers. In most cases STP brokers display their own prices and quotes which reflect the quotes from the interbank. They will choose either to trade in- house like Market Markers or send the trades into the market like ECN brokers. They choose to send the more successful traders into the market and keep the losing one’s close by. Whichever way they choose to, they make profits.

When they send their trades into the market, the STP broker make their commission or spread without incurring any losses. Losing clients lose a large amount of their capital over time. The STP broker knows this and that is one of the reasons they keep the losers in-house. The brokers know that eventually, they will gain from the continued loses. They also make sure that they trade against the losing trades so they can continue making profits.

  • Is there a bad broker?

The STP may sound like a bad broker but in actual fact, the only bad broker is one that changes trades and conditions in the market to deliberately make a trader lose. Some unscrupulous brokers are known to make traders lose all or part of their capital. Every one of the categories listed above has its fair share of fraudsters.

  • Conclusion

To make sure that you are dealing with the right broker, make sure that they are regulated by the correct state governing bodies. Also carry out enough research to find out whether they are what they claim to be. This you can do by reading reviews about their firms and visiting their websites. Read and confirm about all the services they offer, check if they have a working and effective customer support system and that they have your best interest at heart.

Ask any questions about Rakuten brokers by vising the Rakuten securities website and learn the importance of knowing your broker well before you start trading.

 

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