In retail forex, there’s no such thing as a forex broker, although often referred to as such. The sites we drop in on to get rid of our hard-earned cash are run by dealers, not brokers.

So what’s the difference?
In other markets, stocks, precious metals, futures etc., an investor uses the services of an agent acting on their behalf – a broker – who goes off to an exchange with their customers’ instructions and executes the trade. When the tradable instrument, to use a very posh term, is bought and/or sold, they take a commission, flat or percentage.

Unlike an exchange-based market, forex operates on a principals-only basis, and the guys that run a forex site are dealers, not brokers.

The most important consequence of this is that, unlike a broker, a dealer will take on the market risk in concert with the investor. They don’t charge a commission – they make their money via the bid-ask spread method.

There have been regular proposals concerning an exchange-based fx market, see one example here – it isn’t going to happen soon, and would most likely cause as many problems as it solves, not least when the real big guys are considered…