HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
NordFX information and reviews
NordFX
86%

Different Types of CFD Brokers


CFDs are financial derivatives that allow traders to speculate on the price of the underlying assets without having to physically own the asset. CFD brokers enable traders to buy or sell CFDs based on the price movements of the underlying assets such as forex, stocks, commodities, etc. CFD brokers typically provide traders with trading platforms, access to different global markets, and a range of trading tools and resources. CFD brokers earn their revenue through the spread, which is the difference between the bid and ask price of the CFD.

A key attraction of CFD trading is access to leverage which enables traders to control larger positions than their actual capital investment would accommodate. However, this does increase the risk involved in trading, as losses may be amplified. Therefore, traders need to understand the significant risks involved in CFD trading and use risk management strategies to mitigate their exposure.

CFD brokers can typically be categorised into Market Maker brokers and No Dealing Desk (NDD) brokers. No Dealing Desk brokers can be further categorised into Electronic Communication Network (ECN) brokers and Straight Through Processing (STP) brokers. In this article, we’ll take a closer look at how they differ from one another.

Market Maker Brokers

Also known as Dealing Desk brokers, these brokers provide a variety of CFDs that cover global financial markets like forex, commodities, shares, indices, etc. Traders can go long or short on these markets. Market brokers essentially create the market for their clients so often take the other side of a client’s trade. Market makers have their liquidity. They create their prices for the CFDs they offer (i.e., they provide both a sell and a buy quote). To a degree, this is usually based on the price of the underlying asset.

A market maker typically makes money from the spread between the bid and ask prices, and by providing liquidity to their clients.

The size of the bid-offer spread is largely dependent on the liquidity and volatility of the underlying asset. As a result, market makers may offer narrower or wider spreads dependent on the particular instrument. However, being that market maker brokers control the prices at which orders are filled, fixed spreads are also common.

Reasons why traders choose market maker brokers

There are several reasons that traders engage in the services of market maker brokers. These include fixed spreads, lower entry barriers, potential for quick executions, single-price quotations, and no commission on trades. Market makers may also offer additional services such as risk management tools, educational resources, and trading platforms.

No Dealing Desk Broker

As the name implies, these brokers do not pass client orders through a dealing desk. Instead, they provide a trading platform that allows clients to trade directly with the interbank rates. In other words, they send buy and sell orders directly to the forex market. They do this through liquidity providers, banks, financial institutions, other brokers, etc). Two types of No Dealing Desk brokers are STP brokers and ECN brokers.

Straight-Through-Processing (STP) Broker

This broker routes client orders directly to their liquidity providers with whom they work, and who have access to real-time interbank market rates. Each liquidity provider quotes their bid and asks prices and executes the trades. So what does this look like in practice relative to forex? Well, if your STP broker has access to 3 liquidity providers, in their trading platform you will see 3 different quotes of bid and ask prices for a particular currency pair (e.g., EUR/USD). In this way, by working with an STP broker, a trader gains access to the most competitive bid and ask prices available in the forex market.

Electronic Communications Network (ECN) brokers

Like STP brokers, ECN brokers pass client orders to the interbank market. However, they don’t always use liquidity brokers to do this. Instead, ECN brokers sometimes use prime brokers who can take up these offers. ECN brokers are all STP brokers, whereas not all STP brokers are ECN brokers.

Disadvantages of trading on ECN or STP platforms

In summary, while ECN and STP platforms offer many advantages for experienced traders, they may not be the best option for all traders, especially those who are new to the market.

What makes CFDs so popular

There are several reasons why using CFDs has become a popular way to trade among global traders. For one, CFDs offer leverage. This allows traders to trade on margin, opening larger trades with lower amounts of capital. However, while leverage may increase one’s potential to generate more profit, it can also amplify losses considerably. This makes having a good understanding of how leverage works vital. A strategic risk management plan is also recommended. 

Secondly, CFDs also offer traders access to markets that could otherwise be hard or costly to access. This includes metals, forex, stocks, indices, etc. CFDs are generally more accessible to a larger scope of traders due to low minimum deposit requirements.

CFDs allow traders to go long or short on a particular asset, increasing one’s potential to generate revenue in volatile markets. Finally, CFD traders are not required to physically take ownership of the underlying assets they are trading.

Become a strategic trader with T4Trade

T4Trade is a global broker, with clients in many different countries worldwide. T4Trade offers its traders flexible leverage up to 1:1000, tight spreads, fast execution, quick and easy withdrawals and outstanding 24/5, multilingual client support. T4Trade traders can access more than 300  financial instruments across 6 asset classes (forex, metals, futures, shares, indices and commodities).

The T4Trade Academy offers all types of traders an extensive pool of informative resources to boost skills and expertise. The Academy is comprised of insightful e-books, webinars, podcasts, and videos-on-demand, delivered by a team of research experts. In addition, incredibly useful blogs and FAQ pages answer many forex-related questions to help you become a more strategic broker.   

#source


RELATED

Top 7 Richest Forex Traders in the World

If you want to attain high achievements in a specific sphere, it is essential to learn its history, which we consider the foundation to your personal successful career in trading...

Trading Psychology

Trading psychology is a key contributing factor to determining trading outcomes, as it can positively or negatively influence decision making...

Understanding Lot Sizes: Balancing Risks and Rewards in Forex Trading

The trading arena operates in a complex ecosystem that is constantly balancing between potential gains and inherent risks. At the core of this delicate equilibrium is the crucial concept of lot sizes...

Top 5 Books Every Forex Trader Should Read

Foreign exchange, also known as forex, can be pretty intimidating even for seasoned investors who are used to getting their hands dirty...

Best Divergence Indicator in Forex Trading

Profit is what all traders aim at while working on the stock market. They use a variety of helpers to reach the goal. The most profitable trades are built on thorough analysis made by means of special programs...

Backtesting in Trading: A Deep Dive into Historical Data Analysis

Backtesting in trading serves as a time machine, taking traders back to historical market conditions to assess the potential success of their trading strategies...

The top 10 traits of a successful trader

So, you wanna be a trader huh? It’s no secret that online trading has become a lucrative avenue for individuals seeking financial independence in the digital age...

Common mistakes to avoid in forex trading with CFDs

Read on to find out some common mistakes to avoid when trading forex with CFDs. The foreign exchange market draws a lot of new traders' attention due to its low entry requirements and extremely high liquidity (on average, more than $7.5 trillion is traded daily)...

Who has lost the most money ever on the stock market?

Who has lost the most money on the stock market? Continue reading today's article to learn more! In the world of markets and trading just as profits take place on a daily basis, losses are also recorded on a daily basis...

Online Trading vs. Offline Trading

Nowadays, any person who wants to engage in trading is not faced with the question of how exactly to do it. Access to relatively free and fast Internet is available in almost every country in the world...

Is Forex More Risky Than Crypto?

In the ever-evolving financial markets, forex and cryptocurrency trading stand as two distinct realms, each offering unique opportunities and risks...

Temporary Relief to Commodities Supply: Black Sea Grain Deal

The Black Sea grain deal extension did not prevent wheat prices from experiencing a decline, as uncertainty surrounding the deal’s future continues to loom...

Why forex traders lose money?

In the era of high technologies and financial prosperity, many people dream to earn more and do less. Many of them are qualified specialists. They are ready...

Seven essential cybersecurity tips for international travel

Cybersecurity measures should be on top of the what-to-bring-with-you list when preparing for travel, either for business or for tourism. OctaFX security experts give seven crucial cybersecurity tips to keep your data and finances safe while on the go...

What are the advantages of Metatrader 4?

To manage trades in the most optimal way requires a robust trading platform like MetaTrader 4. Released almost 20 years ago, MT4 has gone on to become the most popular platform in the world...

What Is The Best Way To Invest Money When You Don't Have A Lot?

As we know, trading is impossible without starting capital as with 0 on the trading account, your profit will equal zero too. So, what can be done if a trader doesn’t have a sufficient amount to start investing...

The Basics of Fundamental Analysis for Forex Market

Fundamental analysis is a trading discipline traders and analysts commonly use to assess the intrinsic value of a financial instrument by examining the underlying assets, industrial conditions and the broader economy...

Comprehensive Guide to Achieving Financial Independence Through Investing

Financial freedom is a fluid concept, molding itself to personal interpretations and life goals. Whether it's weathering unexpected financial storms, realizing a specific lifestyle dream...

Top 5 most traded currency pairs

There are 180 currencies in circulation across the globe but not all are actively traded in the forex market. Only those currencies that have liquidity and show economic and political stability are traded...

Why Is Inflation So High?

You may have noticed that the prices of your favorite products have recently increased quite a lot. The reason is the incredibly high rates of inflation impacting economies of countries all around the world...

Vantage information and reviews
Vantage
85%
FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.