The thought of becoming an Australian forex trader is an exciting one, but before you can begin trading on the market you need to register with a broker. When reviewing Australian forex brokers you need to understand there are certain brokers which are better than others. There are 5 different types, each one representing a different level in the market, and only by identifying these types will you know which forex brokers to avoid.
The Bucket Shop
The bucket shop type broker actually has very little association with the trading forex market. Instead of working with spot trades, it works with options and future investments. Truthfully, this broker works against the trader taking the position of a retail trader and betting against the individual traders. Not necessarily a broker you would like to register with.
The Book Maker
The book maker’s fundamental base is incredibly similar to that of the bucket shop forex broker. They do not make profits from the actual trade, but earn their income on the different between the selling and buying prices of the trade – the spread. This type of forex broker is also known as spread betters and using a book maker broker is illegal in certain countries, including the USA. In Australia, only sports spread betting is permitted, but forex spread betting is still available in certain areas.
The Retail Australian Forex Brokers
As the majority of foreign currency exchange is conducted online, a form of online forex broker would be required. The retail forex broker falls under this category. These types of brokers differ from the ‘normal’ broker in that they offer a wider range of services and features, disregarding the online feature. Unlike the book maker and the bucket shop, the retail broker is connected to the market and works with traders, not against them. The extent of their association varies from account to account, and is either indirect or direct.
This type of forex broker is the highly recommended for novice traders. Not only are they the most easily found and researchable, but they are legal in most countries negating the need for legal concerns. In addition, the retail brokers trading accounts are free and easy to maintain.
The Institutional Market Maker
While the retail brokers are generally the most highly recommended for amateur traders, it is the institutional market makers which would be most profitable. This type of broker has more of a direct link to the Australian forex market than many, and would be advantageous for the new trader. Yet, one problem the new trader may face is the great capital required to register with these brokers. Although more beneficial, they do not offer free accounts.
The Institutional Broker
Generally, these forex brokers are those that work with the 1 of 200 banks in a consortium with a direct link to the foreign exchange market. It is a highly profitable type of forex broker as it is involved in more than half of the forex trading that takes place, however is not suggested for new traders as the institutional forex brokers are used by banks exclusively.