How Do Forex Brokers Work?

In order to understand how brokers operate and where they get their quotes from, we need to look at it from a wider perspective. The dynamic here is similar to that of any market that consists of buyers and sellers. Traders (the clients) pay sellers (the brokers) a fee (the bid/ask spread) to gain access to the Forex market. In this equation, brokers are actually retailers who provide the service by being connected to liquidity providers. These brokers who are also known as ‘white label’ for the larger brokerage firms, in effect add a further layer to the prices quoted, with all that this entails, removing the trader still further from the actual price action in the interbank pool.

The broker will receive real-time streamed quotes from the liquidity providers by connecting them to the interbank market through a bridge interface. This allows brokers to receive the constant flow of quotation that they use to "resell" to individual traders. Larger brokers usually connect with more than one liquidity provider, this allows them to be flexible when executing orders, and also offer better prices. Meanwhile, small Forex brokers might have only one or two liquidity providers, which could narrow their options in certain situations.