It is possible to divide brokers into four extensive categories on discriminating features and signs, which do this market far from the monolithic industry.
1. Operators of the market. This group includes large banks of commerce, which are regulated according to bank instructions and laws and offer the high level of reliability. However, trading with such banks requires accounts of the essential size as at the big and multinational firms, keeping them out of reach of the private investor. The minimum lot is about 1 000 000 US dollars.
2. The market – makers. These are financial houses, which grant for smaller brokerage offices and offer speculative possibilities of trade to individual traders with the trading capital more than $50,000 or about that. These companies – are rather not numerous, but offer lower cost of trade and usually have firmer financial basis and honesty. But the minimum size of the account about $50,000 keeps them outside of reach for the majority traders.
3. Small brokers. These are small brokerage offices, which please the individuals, wishing to risk with the small capital, from hundreds to several thousand dollars, only to try the good luck or skills of trading. These small brokerage offices often work with the dealer or the market maker from the second group for clearing of warrants of the clients. Here begin risks of realization of operations. Because of the big minimum sizes of the account, which the market maker requires of these brokers, can be so that the local broker will consolidate funds from all accounts of the clients in one abacus at the market maker in name of a brokerage office. At such scheme of work, the trader causes the dealer of a brokerage office to receive the quotation on an input or an exit from an item, and the dealer, in turn, to receive the quotation, causes the market maker. If the quotation approaches the trader, he will instruct the dealer about an input in a new item or an exit from an existing item that the dealer will reflect at corresponding regulation of the client account. At the same time, however, also it is the critical moment, the dealer will make the corresponding bargain on their own account at the market-maker. So in theory if the market inquiry of the client or the bargain are successful, the client will make profit (profit gross from trade minus spreads and commissions) and a brokerage office also will get concrete profit on the own bargain with the market-maker, which will be equal to profit that they will pay to the client plus their own commission and, probably, small spread. Lost in this bargain – the market maker that has put a spread in a pocket, but has lost profit gross from the bargain, received by a brokerage office. Keep in mind that some brokerage offices give to the client a spread wider than that they receive from the market maker (approximately twice bigger), and it is a profit source in addition to their commission though they never will open it to clients. Certainly, if client inquiry – unsuccessful, the brokerage office deducts loss gross from a client’s account and will pay to the market-maker a dead loss after withdrawal of its own broker payments and commissions. Anyhow, the brokerage office receives the commission and a small spread independently from what the advantageous bargain at the client or unprofitable; at least so it is supposed basically.
4. Kitchens. Their founders recognize that the majority of clients lose. That is the “kitchen” income develops of losses of clients.
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