Broker types are the different ways of classifying these trading intermediaries. This classification is made based on the characteristics of the financial assets in which they specialize or the way in which they are managed.
Therefore, what we seek is to order the different existing categories in order to simplify and explain the functions of each one. In this way, we can understand what they do or what their strengths and weaknesses are when choosing them.
For example, we can see if you specialize in stocks, futures contracts, cryptocurrencies, or other financial assets. Also, we will be able to know if they operate as intermediaries in the market or allow the investor to do so directly.
Types of broker by service offered
The types of brokers, depending on the service offered, can be classified into three large groups:
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Broker Dealing Desk or with a trading desk
Dealing Desk means “dealing desk” and implies that the operations are not executed directly in the market, but in them. In this way, they execute and negotiate the purchases and sales of their clients acting as intermediaries.
Market Marker brokers, or market makers, are the best known. In turn, they can be private professionals or companies. In addition, their activity is regulated by a contract with the governing company of the market in which they carry out their operations.
Its operation is simple, they buy at a lower price and sell at a higher one. In this way, your profits are the fork between the two, called the spread. They may also charge a commission per transaction. Let’s look at some subtypes:
- Multi-asset broker: They offer different types of assets, such as stocks, futures, options, or ETFs based on stock indexes. They are the most common among the large ones and operate in different markets.
- Social trading or copy trading broker: In this case, user communities are created that share their knowledge and experience. In this way, what these professionals do is copy the experts and carry out the same operations that they do.
- Specialist broker: They specialize in a specific type of financial asset. In this way, it seeks to offer a better service. Later we will see which assets can be traded.
Broker Non Dealing Desk or non-negotiation table
In this case, they can allow the investor to operate directly without intermediaries, or doing so directly through them. Therefore, in turn, we can make the following classification:
- STP or direct processing broker: This would be a broker that allows you to operate directly without intermediaries. Your profit consists of increasing the spread or charging, in addition, a commission.
- ECN Broker or Electronic Communication Network: In this case, they use technology based on communication networks. They charge commissions for their service and are regulated by official institutions.
- DMA or direct market access broker: They also allow you to operate directly in the markets, mainly Forex. Their job is to coordinate their clients’ orders with the trading prices offered by the market makers.
These types of broker have characteristics of the market maker and the non-dealing desk type. Therefore, it may or may not function as an intermediary. In this way, the client can choose with which variant to operate.
It is important to know these profiles well to know what each of them offer us. In turn, in this case, they can operate with various types of assets. Thus, what they do is take advantage of both systems by offering alternatives to the investor.
Types of broker by asset
Another classification of the types of broker is by the financial asset in which they specialize. We will have the following:
- Stock broker: It is perhaps the best known, since its specialty is the stock market (the Stock Market), and its assets are shares. In this case, they work in a highly regulated and controlled sector by different agencies. It is a good broker for investor profiles who attach great importance to security in operations.
- Forex broker: In this case, the intermediaries are specialized in the Forex or currency market. Indicated for investors who wish to speculate with the exchange rates of different currencies.
- CFD Broker: They are intermediaries that offer contracts for differences (CFDs), which allow trading with different assets, from currencies to raw materials. They are complex assets aimed at professional investors.
- Options broker: In this case, they operate with call or put options. Once again, we are dealing with complex products that are aimed at investors with extensive financial knowledge.
- Futures broker: In this case, they trade futures contracts in highly regulated and concentrated markets. Although they are a complex product, the regulation allows security in transactions.
- Crowdlending broker: These professionals mediate in the loan markets between individuals (Crowdlending). Among other assets, real estate or renewable energy assets are traded. The profile may be of an investor who wants to make a profit by financing other people’s projects.
- Cryptocurrency broker: The asset that trades are the different cryptocurrencies. It is a very varied market in which centralized or non-centralized virtual currencies can be offered, and even referenced in others of legal tender. It is interesting for traders who want to invest in cryptocurrencies, being a very speculative market.
Example of broker types
Let’s see some examples of each type of broker:
- RoboForex: It is a Non Dealing Desk broker of the STP subtype. Therefore, it operates without intermediaries.
- Admiral Markets: Once again we are dealing with a Non Dealing Desk type, ECN subtype, regulated by official institutions.
- oanda: It is a Market Marker broker that operates by buying and selling assets of its clients and earns its profit from the difference between the prices.
- eToro: Within the types of broker we would be facing one of social trading, being the most popular in the world and the largest.
If you want to know a selection made by our experts about the best brokers to invest from Spain, visit this guide.