The broker type is also an important consideration point when choosing a broker. Essentially, brokers can be grouped into two major groups: advisory brokers and execution-only brokers.
Advisory brokers are registered by the corresponding regulatory body to provide advisory services on investments. While this may sound attractive at first, traders should know that there is no free lunch in the market. Advisory brokers charge for their services, usually significantly more than brokers which don’t provide investment advice.
Execution-only brokers have the sole purpose to route your order to the market and execute your trade. They don’t provide investment advice, which is why they’re called execution-only brokers. These brokers have considerably lower transaction costs compared to advisory brokers and traders have to perform their own analysis. If you want to become a full-time trader, we strongly recommend to go with an execution-only broker and do your own market analysis. Only through trials, mistakes and experience – and through learning via an online financial trading courses – will you be able to become a consistently profitable trader.
Brokers can also be grouped by the way they execute your orders. In this regard, the main types of brokers are dealing desk (DD) and no-dealing desk (NDD) brokers.
Dealing desk brokers (DD)
Dealing desk brokers are also known as market makers, as they’re the entity that creates the market for their traders. In other words, DD-brokers take the opposite side of your trade – if you’re buying, they’re selling to you, and vice-versa. Obviously, this creates a conflict of interest between the broker and its customers.
No-dealing desk brokers (NDD)
No-dealing desk brokers, on the other hand, route your orders to internal and external liquidity pools and match your trade with the best available price. They’ll first look inside their own liquidity pool, made up from orders from other traders, and match your order with an adequate counter-order from another trader. In case there’s no counter-order in their internal liquidity pool, NDD-brokers will pass your order to external liquidity providers and execute your trade.