• Can I do stock or Forex trading without broker?
  • What are brokers for, and what functions do they perform?
  • Why should I pay intermediaries if I can do without them?

Those are a beginner investor’s questions aimed at cutting potential expenses.

You make money from currency moves without brokers when you buy currency at a bank or exchange office and then sell it at a higher price. However, this is currency speculation, and it has little to do with investing in Forex assets.

If you want to become a serious investor, diversify risks, and make profits in a few seconds, then you can’t do
without a Forex broker.
Read on to learn who a broker and a sub-broker are, what their functions and advantages are, and how you
can do Forex trading on your own.

The article covers the following subjects:

  • What is Forex Broker?
  • Ways of Trading Forex Without a Broker
  • Advantages and Disadvantages of Trading without Broker
  • How to trade stocks without broker
  • Trading without broker FAQ
  • Conclusion

What is Forex Broker?

A Forex broker is a legal entity that acts as an intermediary between sellers and buyers or between traders and the Forex market itself.

Private persons aren’t entitled to conduct currency trades on their own. All trading operations must be registered and conducted through a Forex broker.

Forex brokers’ activities are strictly regulated and must be licensed. Currency market participants are retail traders, legal persons, and institutional investors. In particular cases, a broker itself can act as a counterparty in a trade.

How Forex brokers work

  1. A broker company signs a contract with liquidity providers – big investment banks or ECN systems, such as Currenex or Integral. The broker also opens segregated bank accounts to keep its money and client money apart.
  2. To be able to trade Forex, a client must make a broker service agreement with the broker. Then, the client has a personal client space registered. A trading account is open in his/her name too. Next, the client tops us his/her account and sends the broker a request to buy or sell currencies using a dedicated trading terminal.
  3. Those requests are called “orders,” and they can be executed in a variety of ways:
  • The broker executes the trader’s order by matching it with an opposite order. For example, the broker receives two orders: to buy 100 euro and sell 100 euro at Bid and Ask prices. The broker matches those orders and earns a fee as a difference between Bid and Ask prices.
  • The broker redirects an order to a liquidity provider, which acts as a counterparty and executes the order.
  • The trader’s order is directly transmitted to the ECN system and executed at the best price.

Why do you need a Forex Broker?

Let’s figure out how to trade forex without a broker and what you will need for it. First of all, the retail trader should get access to the market through an electronic trading platform. A trader’s main instrument is a trading platform. It allows a broker to load current quotes, and a trader can analyze a market situation. In a trading platform, trades are opened, and orders to sell/buy currencies at a current price are sent.

You cannot get access to the trading terminal on forex without broker. A broker usually buys a costly license to get the right to use a MetaTrader and pays monthly fees for it. Then brokes develop the bridge to liquidity providers to transfer client’s trades to open market. You won’t be able to trade without the platform and ECN technologies that the broker provides to retail clients.

You can’t simply take a bag full of money, come to an international bank and say, “I want to trade in the currency market.” They will only suggest that you make an exchange operation at the bank’s rate. Only a broker can provide you access to currency buy/sell operations.

Not only does the bank lack trading instruments, but also it won’t be able to offer you a margin trading mechanism. Without margin, you’ll have to own 1 million dollars to make a profit of 1 %. Without a broker’s system for instantaneous approval of orders, you’ll have to wait for many hours for your trade to be made. You know that the price will have changed by the time the trade has been finally accepted, and your potential profit may turn into a loss.

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Can a broker trade for himself?

In most cases, it can. However, there are some exceptions. Regulators impose some limits in some countries. As a result, access to foreign brokers is banned, and trading without a broker is impossible.

Traders themselves can’t open an account with a foreign broker that isn’t licensed by a local regulator. This system is true of the USA, Japan, and Indonesia, where strict rules apply to CFD trading. Using a sub-broker solves the problem:

  1. A broker that can’t access the US currency market makes a broker service agreement with a licensed broker. Another way is to register a subsidiary company in the USA that will fully comply with the US regulator’s requirements to get a license.
  2. A trader opens an account with the broker and places an order to conduct a trade. The broker redirects the order to the US-licensed broker that executes the trade.

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Thus, the trader’s main broker acts as a sub-broker: not being the US market member, it resells another broker’s service (prime broker) to the client. However, this scheme has two drawbacks: the more counterparties a trade has, the higher the risk and commissions are.

Ways of Trading Forex Without a Broker

Can you do forex trading without a broker? No. Forex trading is impossible without a broker. So, the next question is: which role does the broker play in the trader’s scheme, and who acts as a broker?

1. NDD (Non-Dealing Desk) trading with straight-through processing

Forex offers two types of order processing:

Instant Execution.
This model guarantees that the trader’s order will be executed at the stipulated price. However, there’s no guarantee that the order will be executed at all. It works as follows:

  • A trader sends an order to open a trade at the price he/she sees on the platform.
  • Sending an order and queuing it for execution requires some time during which the price may change. If it does, a broker asks a trader if the order must be canceled or executed at a new price.
  • The trader makes a decision. Meanwhile, the price may change again.
Read:  Forex Trading Brokers in South Africa

Market Execution.
This model guarantees that the trader’s order will be executed. However, there’s no guarantee that the execution price will be the best.

A broker directly participates in the Instant Execution scheme. As for the Market Execution scheme, or NDD, a broker acts as an intermediary that provides a trade’s technical execution. It delivers online quotes and transmits a trader’s orders directly to liquidity providers or ECN systems. Orders don’t get into a broker’s internal system.

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NDD model advantages:

  • Since a broker doesn’t participate in order transmission, orders are executed faster.
  • Transparent spreads. It’s the market that forms spreads. A broker may add a markup, but it can’t change spread levels.

Check the article Principle of orders execution at Forex for more details on how to trade Forex with and without a broker.

2. Investment in currencies without opening a broker account.

Your options would be the following:

  • Buy currency at a bank or exchange office and sell it once the rate has grown. Deutsche Bank, UBS, JP Morgan, Citibank, Dukascopy – all those banks provide liquidity to Forex brokers. Exchanging currency for cash at a bank, you become a Forex participant somehow, while banks can be called “brokers” in that case.
  • Trust management. In that case, you fully trust your manager to control your money:
    • to invest it in investment funds or ETFs related to currency markets;
    • to buy or sell currency in a few clicks through a bank’s dedicated mobile applications; to use individual investment accounts.

How to trade Forex or stocks without a broker? Become a broker: register a legal entity, get a license, open an account, design a site, and buy a trading platform. There are no other ways.

Advantages and Disadvantages of Trading without Broker

To be clearer, I made a table:

Trading with a broker Trading without a broker
Advantages
Disadvantages
Advantages
Disadvantages
Instant access to global financial markets Occasional frauds Relative reliability Narrow list of investment tools
Risk diversification, a combination of manual and algorithmic trading strategies High risks related to incompetent use of margin Law protection No access to margin trading
Passive income services No CFD trading
Unlimited profit levels Trade execution time up to 24 hours and more
Technical support Huge spreads
Financial support
Information support

Let’s examine each of those points in detail.

Advantages:

1. Instant access to financial markets.
A broker can provide over 100 instruments: currency pairs and cross rates, CFDs on shares and stock indexes, commodities, and cryptocurrencies. You can buy or sell any of those assets in a second. An average trade execution period on Forex is up to 100 ms. It means you can have up to 10 trades executed within 1 second.

2. Risk diversification.
A broker allows combining various types of strategies: manual or adviser-based ones, Scalping, Swing trading, intraday, and long-term strategies, Correlation-based strategies, hedging, etc. If one trade turns out to be loss-making, another one may be profit-yielding.

3. Passive income services.
No time to delve into trading principles? Use your broker’s passive investment services! For example, copy trading. You only have to learn the basics of risk management and choose a trader. His/her trades will be copied onto your account automatically. More details on social trading can be found in the article Advantages of Social Trading over PAMM. Why did forex copy trading system replace PAMM accounts?

4. Free technical support:

  • Online quotes from the world’s leading providers. You get asset rates, updated every second on charts;
  • Trading platform. The software which allows analyzing quotes, structuring charts, and using technical analysis indicators. Acquaint yourself with the features of the trading terminal without registration here.
  • Demo account. Free account with virtual money. Better your strategies and advisers, and familiarize yourself with the platform’s functions on a demo account. Free contests with real money prizes are often held in demo accounts. You can register and take part in a competition using this link.
  • Short positions. You can “borrow” an asset from a broker, sell it at a higher price, then buy it at a lower price, and pay back the credit to the broker. Opening short positions is impossible without a broker’s help.

5. Financial support:

  • Leverage. Free credit that increases trade volumes by ten or a hundred thousand times. Using the leverage of 1:10, you can open trades for up to 1,000 USD, having only 100 USD in your account.

You can read this article for more details on leverage.

  • Bonuses. You can have some goodies that increase your deposit by 50%-100% of a payment amount.

6. Information support:

  • Training materials, including the basics of technical and fundamental analysis.
  • Daily analyses and reviews from leading traders: opinions, ideas, and analytics.
  • Seminars and webinars.
  • Extra tools: economic calendar, lot/correlation/volatility calculators, and so on.
  • Affiliate program. You can earn not only from active trading or copy trading but also from a referral network. Bring in new traders and earn a percentage of their commission. A broker provides free advertising materials: banners, business cards, landing pages, links. To learn more, you can read the article Types of affiliate programs and income-generating algorithm.

Disadvantages:

1. Occasional frauds:

One would come across a dishonest broker quite often five or six years ago. Frauds ranged from manipulations with deposits to manipulations with price charts and client trades.

Today, undisguised frauds are a rare thing, but no one can guarantee they will never happen to you.


What can you do if you got hoaxed by a broker? This article may help you out.

1. High risks related to incompetent use of margin:

  • Margin trading is the most significant advantage of trading via a broker. However, beginner traders may become hostage to this advantage.
  • Mere inattention and inability to control leverage may result in an instant deposit loss. In that case, it’s a client that should be blamed for that.
  • The other side of using leverage is the margin. Most beginners believe that the less the margin, the higher chance of not losing the deposit.
  • It seems correct, but in fact, low margin requirements urge a beginner to make more trades. As a result, they accumulate like a giant snowball that draws the deposit to the bottom.
Read:  100 Usd Forex Trading Plan Calculator

Disadvantages of trading without a broker

Let’s examine them in detail.

  1. Narrow list of investment tools.
    When it comes to investment banks, all they can offer is a few currency pairs and their own investment products. Structured notes or ETFs are popular too. And that’s all. You don’t have a big choice here, without even mentioning high profitability. Try not to lose your own money.
  2. No access to margin trading.
    Leverage and margin mechanisms are exceptionally a broker’s privilege. No one else can offer you those instruments.
  3. No CFD trading.
    A CFD (contract for difference) is a special instrument derived from such primary assets as stocks and commodities. For lack of stocks and commodities, CFDs are unavailable too.
  4. Trade execution time up to 24 hours and more.
    To buy something, you need to go through nine circles of Hell. You need to read through and sign a batch of papers. Then, you wait for your trade to be registered, and so on. You just cannot trade fast.
  5. Huge spreads.
    Have you ever seen how the major currencies’ rate is changing at exchange points? At best, the difference between buying and selling rates will be a few currency units. But spreads may go up to 80%! You may sell a currency at $10 and buy it at $18. No profit at all.

Conclusion

  • Opens you access to the instruments of currency, stock, commodity, and cryptocurrency markets.
  • Provides technology: executes orders and delivers quotes.
  • Offers extra earning opportunities: social trading, affiliate programs.
  • Provides a trading platform, calculators, technical analysis tools.
  • Provides fundamental analytics, training materials, and basic knowledge.

Thus, a broker offers you unlimited opportunities for earning from any financial instruments. Your income level depends only on the level of your experience and expertise.

How to trade stocks without broker

The stock market is much different from the Forex market. It’s the real asset market that only professionals may access. Almost anyone can do Forex trading, whereas the stock market imposes specific criteria on its members. Unless you meet them, you won’t be able to trade without a representative.

If you do want to do stock trading at a stock exchange, you have several options:

1. Receive a professional participant’s certificate.

Here’s an example: a professional participant in stock trading is a broker. When it comes to individuals, different countries impose different requirements, but their items are almost the same.

You must have a major in finance. You must have 2-5 year experience of trading through a broker. Your portfolio must include at least four different instruments, such as stocks, obligations, open-end funds, or notes. Your investment capital must be at least 100,000 USD, on average. You must have conducted trades at least once a month within one year.

Only true masochists would bother themselves with those requirements. On the other hand, you’ll have direct access to trading at a stock exchange, and no one will be able to disturb you.

I think it isn’t worth the candle. Stock exchange brokers are thoroughly audited. Any careless step may cost them their business, so trading through a broker is much more comfortable and safe.

2. Sign a broker service agreement with a broker.

It’s the easiest and most convenient way to get access to stock trading. A stockbroker is a kind of a Forex broker, the difference being that the former is more often controlled by the stock exchange and the central bank.

Also, a trading agreement at a stock exchange must be signed in person. It’s not a public offer, unlike at Forex. Then you can get full access to trading stocks, obligations, and anything that is traded at a stock exchange.

Stockbrokers’ Forex services are popular these days. They say that trading through their systems is more reliable. But it is just marketing.

The Forex market is the same everywhere, no matter who is a service provider. The result will be the same. A broker’s reliability isn’t dependent on whether it’s a stockbroker or pure Forex broker. Actually, that would-be reliability will cost you money as you’ll have to pay a tax on withdrawals. It’s a different story, though.

Have you noted there’s no such a point as “You simply buy and sell” here? Because that’s impossible! As I have already mentioned, a stock exchange member must comply with strict legislative requirements. Besides having a license, you have to be a revenue agent of the country at whose stock exchange you plan to trade.

Even if you buy stock from another physical person, it won’t be yours until you register it or re-register it in a depositary. Thus, a private trader can’t trade at a stock exchange without a broker!

As for ETFs, open-end funds, or depositary receipts, you can buy them only through a broker. There’s no other way

Is it possible to trade Forex without a broker?

We have found out earlier that only professional market participants may have direct access to stock exchanges. Sure, there exists an opportunity to buy stocks using A Direct Stock Purchase Plan (DSPP), but it’s another story.

So, let’s examine the advantages and disadvantages of trading without a broker.

Advantages:

  1. Access to any foreign companies’ stocks, not only blue chips.
    Beginner traders often find it difficult to estimate potential risks, so the regulator limits the risk by providing only low-risk assets.
  2. Access to foreign derivative instruments.
    A broker allows you to trade only your country’s forward contracts and excludes risky foreign forwards.
  3. Access to ETF, ETN, Mutual funds, euro bonds, etc.
    Only professional market participants may invest in foreign funds.
  4. Access to depositary receipts.
    Being too complicated, these instruments aren’t popular with private investors and are therefore unavailable to unqualified members.

Disadvantages:

  1. Entry threshold.
    A professional member’s minimum asset value must be at least 100,000 USD. It corresponds to a broker’s authorized capital. For example, in the USA, an investor has to manage at least 100 million USD.
  2. Minimum volume requirement.
    You must make at least a few trades per quarter at a stock exchange, and at least once a month, with a total volume of at least 100,000 dollars.
  3. Qualification certificate.
    Your country’s regulator must issue a certificate of compliance for you. For example, in the USA, it’s the SEC’s certificate.
  4. No margin trading mechanism.
    You won’t be able to use margin without a broker’s license, as we have already found out.
  5. Independent payment of tax on profit.
    If you’re a broker’s client, your broker pays all the taxes for you, and you don’t have to worry about that. If you’re a professional market member yourself, you fill in a tax declaration and pay the taxes yourself. I think it’s an extra burden.
Read:  How Can I Learn About Forex Trading

The solution to a high entry threshold may be trading in the OTC market of CFDs on shares. You’ll need only 50-100 USD for a start. I’ll provide two charts to compare the quotes.

LiteFinance: Trade Forex Without a Broker: Is it Possible in 2022 | LiteFinance

This is the chart of the stock exchange’s quotes.

LiteFinance: Trade Forex Without a Broker: Is it Possible in 2022 | LiteFinance

They are identical. A small difference lies in different scaling, but the quotes are almost the same. Note that the quotes of Facebook shares at the stock exchange and CFDs on shares at Forex are just 2 cents different.

Conclusion:
Trading without a broker may be interesting for small capital traders for passive long-term investing. When it comes to active trading, I recommend trading CFDs on shares at Forex. The trading principle is the same, but stock exchange fees are excluded, and the deposit of 100 USD will be enough for active trading. Also, leverage can be used, whereas margin trading is impossible without a broker.

Trading without broker FAQ

There aren’t any. Forex is an OTC currency market whose daily turnover equals dozens of millions of US dollars. Private investors don’t possess a financial and technical opportunity to enter the market on their own. You can make money from currency exchange through a bank or at an exchange point, which are financial intermediaries too. However, earning through a Forex broker is easier.

Yes, you do. A broker provides the following features and services:

Transmission of a trade to liquidity providers and ECN systems with the fastest execution rate of 50-100 ms.

Online quotes.

Leverage. Free credit for opening trades 1,000-2,000 times bigger than your deposit amount could allow

Passive investment tools: Copy trading platform, PAMM investing, affiliate programs.

Technical and fundamental analysis tools. Indicators, advisers, strategy and investment portfolio constructors, trade opening signals, professional analysts’ reviews

Basic knowledge: technical and fundamental analysis training, analytics and information support, seminars, webinars, and so on.

Assistance in any trading issues.

Trading without a broker and its technical support at a stock exchange is impossible. There exists an NDD (Non-Dealing Desk) model in which a broker participates the least in the chain of counterparties. Technically, it only provides quotes to a trader. The counterparty is a liquidity provider that gets a trader’s direct order. A retail Forex trader gets direct access to the Forex market, which is technically ensured by a broker.

Stock trading on NYSE without a broker is impossible. Only licensed brokers may access the NYSE’s instruments. They must comply with the NFA regulator’s requirements concerning the minimum authorized capital, annual account turnover, information disclosure, and so on. The licensee must own an office, employ certified top managers, regularly provide financial reports, and have segregated accounts. The penalty may go up to 100,000 USD and more. Only legal persons can comply with those requirements.

You can’t use MetaTrader for trading without a broker. MT4/MT5 is a trading platforms that provides tools and features for analyzing quotes and making trades. However, you can do that only on a trading account that you opened with a broker and connected to the platform via the menu. If a broker doesn’t allow connecting a trading account to MT4, you should use the broker’s version of MT4 with unique settings from the broker’s site. Other brokers’ versions or the original MetaQuotes platform won’t be operational in that case.

Forex brokers charge the following fees:

  • Spread: the difference between an asset’s buying and selling prices. Broker’s fee under B-book model, when a broker acts as counterparty. It is typical of cent accounts.
  • Markup: the amount added to the spread under A-Book model. Under this model, a trader’s trades are transferred to the external market – ECN systems and liquidity providers. Thus, the spread is formed by a market demand/supply ratio and a broker’s markup. A trader is charged the final amount.
  • Fixed commission per one lot, typical of ECN accounts.
  • Swap: a fee for carrying a trade over to the next day.
  • Withdrawal fees, which many brokers don’t charge, actually.

A fee amount depends on a broker’s trading conditions and trading asset type. All fees are specified in the public offer, account trading conditions, and contract specifications.

Conclusion

If you’re planning to invest and trade seriously, you can’t do without a broker. Only a broker can provide you access to global markets and such investment instruments as currency, stocks, oil, or cryptocurrency within a few seconds. Choose tried-and-true ECN brokers: only they provide optimal trading conditions and high speed of orders execution. Such brokers will be your reliable partner, as they aim at successful long-term cooperation.

Are you ready? Then start with LiteFinance Client Space and make your first trade on a demo account without registration.






Forex Trading Without a Broker


The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.


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