Forex Broker types

Question 1

What are the two main types of Forex brokers?

Answer 1

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

Question 2

Dealing Desk brokers are also called?

Answer 2

Market Makers.

Question 3

No Dealing Desks can be further subdivided into?

Answer 3

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

Question 4

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

Answer 4

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

Question 5

What is a No Dealing Desk Broker?

Answer 5

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.

Question 6

What is an ECN Broker?

Answer 6

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

Question 7

The “bid” is?

Answer 7

the price at which you can SELL the base currency.

Question 8

The “ask” is?

Answer 8

the price at which you can BUY the base currency.

Question 9

How is the Spread in Forex Trading Measured?

Answer 9

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.

Question 10

Currency pairs involving the Japanese yen are quoted to only?

Answer 10

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.

Question 11

What are the two types of spreads?

Answer 11

Fixed and Variable (also known as “floating”)

Question 12

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

Answer 12

market maker or “dealing desk” model.

Question 13

Variable spreads are offered by?

Answer 13

brokers operating a “non-dealing desk” model.

Question 14

What are the Advantages of Trading With Fixed Spreads?

Answer 14

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.

Question 15

What are the Disadvantages of Trading With Fixed Spreads?

Answer 15

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.

Question 16

What are Variable Spreads in Forex?

Answer 16

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.

Question 17

What are the Advantages of Trading With Variable Spreads?

Answer 17

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

Question 18

What are the Disadvantages of Trading With Variable Spreads?

Answer 18

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.

Question 19

How do you calculate spread cost

Answer 19

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.

Question 20

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

Answer 20

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

Question 21

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

Answer 21

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.

Question 22

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

Answer 22

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.

Question 23

What are the three types of Forex market analysis?

Answer 23

Technical Analysis

Fundamental Analysis

Sentiment Analysis

Question 24

A simple line chart draws a line from?

Answer 24

one closing price to the next closing price

Question 25

A bar chart showes?

Answer 25

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

Question 26

Bar charts are also called OHLC because?

Answer 26

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

Question 27

Candlestick charts show the same price information as a?

Answer 27

bar chart