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Monday, November 19, 2018

How to Choose a Broker for Cryptocurrency Trading

by Editor (editor), , October 11, 2018

Knowing how to trade with cryptocurrency is crucial because it determines your overall success as a crypto trader.

Trading cryptocurrency for profit has become of age and is increasingly becoming accepted. Cryptocurrency is basically a virtual currency that is created by use of the cryptography technology and is nowadays available for trading as a CFD product from the online cryptocurrency brokers. Knowing how to trade with cryptocurrency is crucial because it determines your overall success as a crypto trader.

What is an online broker?

An online broker is essentially a firm that facilitates trading of the cryptocurrency, indices, currencies or any other forms of trading instruments Over-The-Counter. The OTC trading means that, for instance, when you are trading crypto currencies you need not own them. They can be traded as the CFD instruments through the cryptocurrency platform provided by the broker. A forex broker plays a key role in facilitating the transactions that are involved in the digital currency trading.

A currency broker that facilitates cryptocurrency trading offers the crypto trading platform and other support services. Some of them includes the latest news as well as educational support for their traders. A forex broker may also have advanced tools or charts that CFD crypto currency traders can use for their analysis and trading execution. The MyForexEducation.com is an ideal resource that reviews the best online brokers. It also avails the latest news and educational articles.

What are types of brokers?

Dealing Desk (market makers)

These types of brokers provide liquidity to their customers. The broker settles the orders from the customers directly through its inventory. This broker, therefore, acts as the market for the trading customers and has been branded as the market maker. The dealing broker is a counter-trading party for every transaction taken in the cryptocurrency market trading. This broker either matches the trades among the crypto traders or executes them from their own on-hand inventory.

The dealing desk brokers usually make their money by charging a fixed or variable spread on every trading transaction. They have bids and ask spreads that are similar to the interbank quotes, with only a little variation. The fact that the market makers can take counter trades in trading transactions, it means that they can manipulate the trade positions to their advantage.

No dealing desk (NDD)

NDD brokers do not counter-trade the cryptocurrency transactions from their traders. They have a direct method of executing the traders’ orders through the interbank market. This type of a cryptocurrency broker connects the traders to the banks or the financial institutions which provide liquidity for them. These brokers are categorized into two, Straight through Processing and Electronic Communication Network brokers.

  • Straight Through Processing – STP brokers

The STP brokers functions by forwarding the orders placed in their cryptocurrency trading platforms to several liquidity providers, which form the interbank market. These liquidity providers have varied quotes for each specific transaction forwarded to them. The cryptocurrency platform for the STP brokers determines the best rates for their clients’ quotes and proceeds to execute them. The STP brokers make their money by charging a markup on the spreads of their trading transactions.

  • Electronic Communication Network – ECN brokers

The ECN brokers that provide a cryptocurrency exchange platform do not directly forward the orders from their clients to the liquidity providers. These brokers allow the interactions amongst the traders through an ECN, which enables them to get the best quotes in cryptocurrency market trading. These brokers also add the liquidity providers to their trade executions because the ECN traders alone cannot provide adequate liquidity.

These brokers match the traders’ orders with the interbank rates so that their clients obtain the best quotes in the market. They make their money by charging commissions on their trading transactions. This helps them to keep lower spreads for the traders’ positions.

Hybrid brokers

These brokers are categorized into either the A – booking (NDD Model) or B-Booking brokers. The A-booking brokers take the traders orders directly to the providers of liquidity or the real markets. The B-booking brokers manage the trading orders of their clients internally without having to forward them to the interbank markets. The classifications of the traders in either the A-book or B-book is itself a creation of the hedging position to manage the trading risks and increase profitability.

These brokers though, can have fair practices in their A-booking and promote market manipulation in their B-Book without their clients’ knowledge. They offer variable spreads or fixed ones for their commission earnings. The double-dealing strategy can also offer a chance for the hybrid brokers to counter trade their clients in the B-Book. This means that for every losing trade on the part of the traders, the broker’s side would be gaining. This kind of trading system forces the traders into losses while the hybrid brokers continue to illegally profit from them.

Conclusion

Cryptocurrency trading is highly decentralized with no central authority or government that can limit or interfere with the trading potential. The digital currency trading has become easier, especially with the aid of the best rated online crypto brokers that have taken trading to the next level. Any aspiring trader can, therefore, practice trading cryptocurrency to reap their financial fortunes.



About the Writer

Editor is an editor for BrooWaha. For more information, visit the writer's website.
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