This is a short demonstration of the difference in direct and indirect investing. we will elaborate further to discuss the role and types of brokers when trading the financial markets
An example of an indirect trader would be a consumer/banker who invests through a bank for a fixed annual interest on investment. study below pattern from top to bottom.
all the above parties need to get paid from the investment.
The banks use what we call compound interest on your behalf.
Let’s make an example of a R5000 investment over 2 year’s period for 6% interest per annum.
2021 JAN: R5000 X 6% = R300 (you now have R5300)
2022 JAN: R5300 X 6% = R318 (you now have R5618)
= R618 Profit in 2 years
Bear in mind they trade every day and not once a year!!
Direct trading refers to consumers/retail traders such as kerese markets or yourself, we are referred to as retail trader. study below pattern from top to bottom.
|LIVE FUNDED TRADING ACCOUNT|
2021: LOW = 10662 HIGH: 20371
2021: LOW = 12060 HIGH: 19020
PROFIT MADE IN 2 YEARS IS R9645.40
Everything you need to know about investing in the comfort of your home inclusive of strategies implemented by big institutions.
WHAT IS REQUIRED IN ORDER TO TRADE THE STOCK MARKET OR FOREX MARKET?
- You need to be 18 years or older.
- Have a valid id or passport.
- Have an active bank account.
- Licensed/Regulated broker.
- Install MT4 / MT5 or Broker platform.
- KNOWLEDGE TO TRADE.
What is the role of a broker?
A broker is a licensed/regulated institution that serves as an intermediary between the investor and a securities exchange as they only accept orders from members of the exchange. They basically execute orders to the exchange as per client’s request.
- Dealing desk
These type of brokers make their money from spreads and service of providing traders with liquidity. They are also referred to as market makers meaning they often trade against their clients, as bad as it may sound this simply means that they buy and sell your trades at the same time because they provide liquidity for both buying and selling slides.
Example: You place a trade with lot size 1.00 (100000 units) EUR/USD, to match your trade and to reduce risk the broker will try to find suitable trade volumes from other traders or switch to a different liquidity provider to try avoid risk without confronting clients as they also make money from spreads and if they cannot find same liquidity to match your transaction, they will therefore directly confront your transaction.
- No dealing desk
These type of brokers do not create their own markets but simply make money by charging commission and raising spreads a bit.
These type of brokers are divided into 2: ECN (Electronic Communications Network) and STP (Straight through Processing)
What is STP?
This type of no dealing desk would normally direct client transactions straight to liquidity providers and interbank markets, they usually have multiple liquidity providers whom would offer different spreads.
What is ECN?
A true ECN broker will allow their clients trading orders to interact with other trading orders interacting on the ECN system. Participants can be hedge funds, banks, retail investors or brokers. They basically exchange with each other by providing their best bid/ask price.
They also allow clients to see the depth of the market displaying the buy and sell orders of other participants, the nature of these brokers make it difficult for them to manipulate nor increase spreads and therefore they often earn income through commission charged for their service. Dealing desk brokers have wider spreads than No dealing desk brokers therefore traders who need tight spreads should trade with STP or ECN brokers. Dealing desk brokers hardly charge commission or less so if