This article looks at the different types of Australian forex brokers and their features.
When entering the foreign exchange market, there are various aspects of trading that you will need to consider. It is important you understand the different features of the trade itself including analysis and development of a strategy. It is also important you understand the different features of Australian forex brokers, as well as the different types of forex brokers available. Each forex broker serves a separate function, and it is essential that you are aware of the details.
The introducing Australian forex brokers
The introducing broker is an individual or organisation that accepts orders on whether to buy or sell futures contracts, foreign exchange currencies, or commodities options. However, this introducing broker (IB) does not accept physical money or assets from the customers to support orders made. Although the IB partners with a merchant who handles the trading market and trade execution, the broker has a direct relationship with the client.
The introducing broker offers a specialised form of customer support and earns money off the trading spread. In order to generate business the IB usually provides their clients with package perks and benefits including, an access to additional services like advanced charting software and volume-based trading rebates. This is particularly beneficial to foreign exchange traders as they make numerous round-trip trades on a monthly basis and the rebate allows for substantial savings.
The hedging feature
Trading on the foreign exchange market can be highly risky, and all traders are looking for ways to reduce this risk. One method that can be used is known as hedging.
A forex hedge occurs when a foreign exchange trader will enter a trade with the intention of protecting the existing or anticipated position against an unwanted change in exchange rates. For example, a trader who has purchased a currency pair can use a hedge to protect that pair against a downside risk.
There are two types of hedging, direct and indirect. Direct hedging occurs when opposing traders are entered at the same time. Not all forex brokers allow for hedging, especially direct hedging, therefore you must determine the details of the brokerage before registering with them.
The scalping feature
Scalping is a short-term trading strategy whereby one will execute and close multiple trades within the same day. These trades are extremely short lasting anywhere from a few seconds to a few minutes. The intention of scalping is to make as many small profits as possible from multiple trades on a frequent basis. While this can be beneficial, it is also a highly risky trade as the multiple trading can cause account depletion if you have a string of bad trades.
A scalper will only trade in the most liquid market conditions. The majority of forex brokers do not offer support to this type of trader; therefore, it is important to determine whether your chosen forex broker is accommodating of your strategy before working with them.
The dealing desk
The dealing desk is the financial institution’s forex deals as seen on the foreign currency market. A dealing desk can be likened to a large facility with dozens of traders specialising in specific currencies, offering support and assistance to traders while executing trades on their behalf. The drawback to a dealing desk is that there is a great chance of a trader receiving a re-quote. It is often seen that these re-quotes will incur losses for the trader.