Foreign exchange market broker is the most important link in today’s systemic hierarchy of marginal retail forex market. In many cases, the broker - is the foreign exchange market broker who arranges trades, attracts and services customers, generates trades and develops information technologies.
In theory, we can distinguish several types of FX brokers:
Introducing broker - IB. Normally, IB is a company or several individuals, which represents a brokerage company (broker - dealer) and provides commercial services in the international currency market. IB works directly with customers, encourages them to start trading at a certain company, signs contracts with them, advices and teaches potential customers. IB earns commissions which are paid to him by a broker-dealer. The more customer trades, the more IB earns. It is important to note that IB receives income regardless of the profitability of his clients. IB receives his commission regardless of his client results however he is interested in his clients successful trading. The reason why IB is interested in his clients successful trading: the better and more clients trade, the more commissions IB earns.
Attention can be drawn to the fact that there are cases when commissions which are paid to the brokerage company (broker-dealer) might be deducted from the customer’s account. If the client makes operation in the FX market but does not record profit or loss, commission still will be deducted from his trading account.
Broker-dealer is a brokerage firm, which offers to his clients an opportunity to trade in the FX market through they trading platform, and provides technical support, customer’s and other services. Broker-dealer can be commercial and investment banks and is the most important link in the trading system where the customer carries out his trading operations in the FX market. It is the broker-dealer who sets and changes prices spreads and other trading conditions. Broker-dealer decides when, how much and which clients’ positions “send” to the market or accepts relevant risks and earns from customers errors. Typically, broker-dealer has several accounts in the larger brokerage companies or banks. Money broker-dealer offers a higher spread to his customers than that he receives from other brokerage companies and so earns the supreme part of his profit. Also, broker-dealer receives profit from other market operations.
Market maker is the participant of the FX market, which has the greatest power in the market and can also be a broker-dealer. Market maker’s actions are reflected in the global currency market. Usually market maker is a large broker firm or bank, which actively participates and has huge positions in the forex market and so affects the price level. From there originates the entitlement of the market maker, which is an entity that operates in the market and affects the price level. Market maker sometimes has clearing accounts in larger banks however it can also be “the last place” where trading operations occur.