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Flashcards in Forex Broker types Deck (27)
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1

What are the two main types of Forex brokers?

Dealing Desks (DD) and No Dealing Desks (NDD).

2

Dealing Desk brokers are also called?

Market Makers.

3

No Dealing Desks can be further subdivided into?

Straight Through Processing (STP) and Electronic Communication Network + Straight Through Processing (ECN+STP).

4

Forex brokers that operate through Dealing Desk (DD) brokers make money through?

spreads and providing liquidity to their clients. Also called “market makers.

5

What is a No Dealing Desk Broker?

No Dealing Desk (NDD) brokers do NOT pass their clients’ orders through a Dealing Desk. This means that they do not take the other side of their clients’ trade as they simply link two parties together.

6

What is an ECN Broker?

True ECN forex brokersallow the orders of their clients to interact with the orders of other participants in the ECN.

7

The “bid” is?

the price at which you can SELL the base currency.

8

The “ask” is?

the price at which you can BUY the base currency.

9

How is the Spread in Forex Trading Measured?

The spread is usually measured in pips, which is the smallest unit of price movement of a currency pair. For most currency pairs, one pip is equal to 0.0001. An example of a 2 pip spread for EUR/USD would be 1.1051/1.1053.

10

Currency pairs involving the Japanese yen are quoted to only?

2 decimal places (unless there are fractional pips, then it’s 3 decimals). For example, USD/JPY would be 110.00/110.04. This quote indicates a spread of 4 pips.

11

What are the two types of spreads?

Fixed and Variable (also known as “floating”)

12

Fixed spreads are usually offered by brokers that operate as a?

market maker or “dealing desk” model.

13

Variable spreads are offered by?

brokers operating a “non-dealing desk” model.

14

What are the Advantages of Trading With Fixed Spreads?

Fixed spreads have smaller capital requirements. fixed spreads also makes calculating transaction costs more predictable. Since spreads never change, you’re always sure of what you can expect to pay when you open a trade.

15

What are the Disadvantages of Trading With Fixed Spreads?

Requotes can occur frequently when trading with fixed spreads since pricing is coming from just one source (your broker). Slippage is another problem. When prices are moving fast, the broker is unable to consistently maintain a fixed spread and the price that you finally end up after entering a trade will be totally different than the intended entry price.

16

What are Variable Spreads in Forex?

Variable spreads are offered by non-dealing desk brokers. Non-dealing desk brokers get their pricing of currency pairs from multiple liquidity providers and pass on these prices to the trader without the intervention of a dealing desk.

17

What are the Advantages of Trading With Variable Spreads?

Variable spreads eliminate experiencing requotes. This is because the variation in the spread factors in changes in price due to market conditions. Trading with variable spreads also provides more transparent pricing

18

What are the Disadvantages of Trading With Variable Spreads?

Variable spreads aren’t ideal for scalpers. The widened spreads can quickly eat into any profits that the scalper makes. Variable spreads are just as bad for news traders. Spread may widen so much that what looks like a profitable can turn into an unprofitable within a blink of an eye.

19

How do you calculate spread cost

you can buy EUR/USD at 1.35640 and sell EUR/USD at 1.35626. This means if you were to buy EURUSD and then immediately close it, it would result in a loss of 1.4 pips. if you’re trading mini lots (10,000 units), the value per pip is $1, so your transaction cost would be $1.40 to open this trade.

20

The pip cost is linear. This means that you will need to

multiply the cost per pip by the number of lots you are trading.

21

The pip cost is linear. This means that you will need to #2

multiply the cost per pip by the number of lots you are trading.For example, if the spread is 1.4 pips and you’re trading 5 mini lots, then your transaction cost is $7.00.

22

How do you make sure you have the most complete view of the market?

The best way to do this is to subscribe to a second, third, or even fourth price feed. That way, you get another view of the market, and you’d have a chance to confirm whether price really moved the way it did.

23

What are the three types of Forex market analysis?

Technical Analysis

Fundamental Analysis

Sentiment Analysis

24

A simple line chart draws a line from?

one closing price to the next closing price

25

A bar chart showes?

the opening and closing prices, as wellas the highs and lows.

26

Bar charts are also called OHLC because?

they indicate the Open, the High, the Low, and the Close for that particular currency.

27

Candlestick charts show the same price information as a?

bar chart