In order for us to trade the forex market we require to have a broker. A broker is an individual or firm that acts as the middle man between buyer and seller trading in the forex market. The foreign exchange market is quite similar to the stock markets, except that the migratory of forex brokers do not charge a commission. Forex brokers are usually tied to large banks or lending institutions this is because of the huge sums of money traded in the foreign exchange markets.

There are basically two types of forex brokers:
1. Market Makers
Market-making is a lucrative business for brokers and banks, which creates the backbone of market liquidity. By quoting the bid and the ask prices on the trading platform of electronic brokering platforms, or through telephone calls, they essentially provides liquidity and invites other qualified parties (other banks, corporations or individual traders) to make a deal with them. In doing so, market makers must be prepared to buy or sell from other market participants.
For example, if someone wants to buy a specified amount of EUR/USD from them at the agreed rate, the market maker must sell the requested amount to them at the ask price, thus making them the counterparty to the transaction.
Through market-making, market makers profit from the spread, which is the difference between the price at which the market maker will buy (bid price), and the price at which it will sell at (ask price) from a customer.
During periods of high liquidity in which there is a great deal of trading activity, spreads of the actively traded currency pairs are usually kept quite narrow, between 1-6 pips. When the market is very quiet with little trading action going on for a particular currency pair, for example just
prior to the New York close on Fridays or during news releases, dealing spreads tend to widen, sometimes by a huge margin, as a way for market makers to protect themselves when they feel that they may have to carry additional risks. In addition to their primary role of supplying liquidity, traders from these banks also undertake intraday or short-term speculative trades based on opportunities created by their clients’ transactions. Market makers usually operate a dealing desk, which refers to the market maker trading with the customer, and the presence of dealing desks means that the market maker may potentially trade against the customer. It is possible for market makers to manipulate currency prices so as to run their customers’ stops or not let customers’ trades reach their profit target levels. They may move their currency quotes 10-17 pips away from the interbank rates. Independent traders should always be skeptical of claims by some market makers when they say they operate a dealing desk.

2. Electronic Communication Networks (ECNs) ||Straight Through Processing(STP)

ECNs/STP (ES) are electronic trading platforms that match buy and sell orders automatically at the specified prices. Traders tend to be more aware of their existence in stocks or futures markets.
An ES broker gets its currency pricing from several liquidity providers such as banks, market makers or other traders who are connected to the system. When an order is placed, it is routed to the best available bid or ask price in its system. Unlike the case of some market makers, spreads on ES are variable rather than fixed. Although ECN-type brokers typically charge a small commission, you can usually get tighter spreads on many currency pairs due to the large liquidity pool available. Risks of trade manipulation are also minimized when using genuine ES brokers as compared to brokers that operate dealing desks.

The broker that you use can significantly make an impact on your trading success. The choice of broker must be an individual decision, because everyone has different needs and preferences. Both new and old traders should carefully examine the practices and policy contracts of brokers, and be up-to-date with new information on brokers. Below are some points that you might want to consider when selecting a broker. You can use it as a rough guide to narrow down some candidates that match your own needs.

When choosing a forex broker there are many factors to take into account.

• Trust
• Experience
• Level of success
• Amount of advice to be given
• Convenience
• Amount of Leverage offered
• Speed
All of the above are important. In any financial transaction, it is important to trust the broker you work with. This trust is confirmed by the experience level the broker has. Of course there are some new brokers starting out who are quite trustworthy, but most people would rather work with an experienced broker. Convenience is also important. If you live in Britain then an Asia broker might not be the best choice. But in the age of the internet that factor has become less relevant. With fax and email where you and your broker live has become less important.
The amount of margin offered is important. Margin is used to leverage your money. A broker who gives you a 100 to one margin is more valuable than one who gives you 10 to one. And of course
The speed-Is your broker quick? Does your broker return phone calls and emails promptly? If so, perhaps you can work with him.
Your broker will be a trusted advisor and someone that you may be working with for years to come so choose the relationship wisely but carefully. Finding a good forex broker is a job in itself. When you communicating
with a forex broker, you are in essence conducting an employment interview to determine if this is the broker you wish to handle your financial affairs, so be thorough. Ask plenty of questions. Ask for
references.
Check and see if the broker is willing to offer you a demo account to use to get in some practice before you actually make an investment. If the broker is able to do so and encourages you then it means that the broker wants educated clients and is not just out for the quick buck.
See what kind of training and tutoring the broker is willing to offer. A good broker will offer to answer your questions and help you through the learning process.

Five Ways to Avoid Forex Broker Scams

Whenever there is a chance to make large amounts of money, there will be people who are eager to jump right in and start making money. And where there are people who are eager to get rich quick with a minimum of effort on their part, there are designated fraudsters waiting to take their money. Experienced traders are wise enough to avoid the frauds. Mostly it’s the new traders who are most vulnerable to the forex scams that are slipping into the currency exchange market.
The U.S. CFTC (Commodity Futures Trading Commission), which regulates futures and commodities trading, warns new investors to be wary of frauds and scams that promise huge profits from your investments, in and out of the Forex market. The CFTC has issued several Consumer Fraud Alerts in connection with foreign currency trading. They offer the following tips to help you avoid being scammed.

· Be skeptical of high-profit-low-risk come-ons.
“I made $3850 in five minute!” touts one sidebar ad for a Forex trading company. Ads that promise high returns on small investments with little or no risk to you are tempting bait. The fact is that while there are certainly big profits to be made in forex, there are correspondingly large losses. And most novice traders drop out of active trading by the end of their first year because they ignored the risk.
· Be suspicious. Period.
Before you part with a penny, thoroughly check out the company or broker you’re planning to do business with. Check the CFTC’s consumer fraud alert page. Check to see if the company is registered with the CFTC. Check to see if there’s any disciplinary action against the firm or company. Get even more basic. Get a valid address and telephone number, and verify that it belongs to the company. Check to be sure the person you’re dealing with actually works for the company.

· Beware high pressure sales tactics.
Legitimate dealers don’t need to contact you with unsolicited email, or pressure you into doing business with them, without you giving the information that requests for such information. If someone is pushing you to invest right now, tonight, this moment, it should set off huge warning signals in your head. A real dealer is more concerned with keeping you as a customer for the long haul. He’ll be patient while you check out his credentials and reputation. A phony dealer can’t afford
that luxury – he needs to get you on the hook right now, or risk losing his score. While technically not a ‘scam’, you should also be wary of paying good money for training courses that promise you systems that are ‘guaranteed’ to earn you high profits. If the course advertises that their
system will earn you huge profits with minimal risk, or guarantee you 40% return on your money in five days, take the promises with a huge grain of salt. Experienced traders understand that the forex market is a time market – while it’s possible to make Big amounts of money in short-term trades, finding those profitable opportunities is a matter of being in the right place at the right time… which means putting in the time and the effort to be there. They also understand that they’ll lose more often than they win – the trick is to cut your losses short and let your profits run.