66.30 % of retail investors lose their capital when trading CFDs with this provider.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66.30 % of retail investors lose their capital when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

What is the role of a broker and what to look out for when choosing one

Published: 12.05.2023

If you want to start trading stocks, Forex, commodities, gold or other instruments on the financial markets, you cannot do without a broker. But what does broker actually do and what to keep in ming when choosing one? That will be the focus of today’s article.

Just as you need an ISP to access the Internet, you need a broker to access the markets. Fortunately, in this day and age of online trading, this no longer means contacting your chosen broker dealer in person or over the phone. You only need to open a trading account directly on the website of your chosen broker. You then send the money you are trying to multiply by trading on the financial markets to that account and you are all set.

But there are many brokers and they differ not only in the services they offer, but also in how they process your orders or in which country they are licensed. So what to look out for when choosing a broker and what to look for in a broker? We will get to all that, but first let's explain what a broker actually is.

What is a broker

Brokers serve as an intermediary between individual selling and buying investors/traders and the intricate world of the financial markets where they match their orders. They are able to do this thanks to their technological infrastructure and the connection of their servers to other financial market entities (e.g. liquidity providers), but also thanks to their license. This is because each broker must comply with the rules defined by the regulator - a financial entity that has issued the broker with a licence authorising it to carry out brokerage services.

It is the type of infrastructure of a broker and its license that will tell you a lot about how a broker is likely to treat you. Specifically, how it will process your orders and to what extent it will protect you from the pitfalls of the market.

Broker type by trading infrastructure model

The way a broker handles your trading orders is determined by the type of its trading infrastructure model. Although there are several types of brokers, the most commonly mentioned are the STP (Straight Through Processing) and MM (Market Maker) models.

  1. STP model

    We wrote in the introduction that a broker serves as an intermediary between its clients and the world of financial markets. And that is exactly what applies to the STP model of broker. In fact, its infrastructure model and its license allow it to take its clients' orders and send them into the market with a tiny margin. Here, it then pairs them with the orders of the counterparty (the so-called liquidity providers). An STP-based broker therefore has zero room for ulterior motives and unfair order manipulation.

  2. MM model

    A broker based on the Market Maker model has enough liquidity to counterparty its clients entirely on its own. Their orders therefore do not flow into the actual market, but take place in the so-called Internal book. These brokers usually have lower spreads, but not all traders are comfortable with the fact that their orders do not flow into the actual market and consider this model less moral. Although there have been a few cases in the past where MM brokers have covertly manipulated their clients' orders, nowadays it is possible to find solid brokers even on an MM basis.

Read more about the comparison of broker types

Choosing a broker and what to look out for

There are many factors to consider when choosing a broker, below we have listed the ones we believe are the most important.

Broker Regulation

You will often see the term "off-shore" broker. This category includes those brokers who have a broker's license issued in countries where they are subject to less regulation. In short, lower regulation means less protection for the customer, but at the same time more freedom, for example in the use of leverage, which is an integral part of online trading.

For example, clients of brokers who are regulated and licensed within EU jurisdictions (under the supervision of ESMA - European Securities and Markets Authority) are protected against negative account balances and can use leverage up to a maximum of up to 1:30 (they can multiply their potential profit but also losses up to thirtyfold). This means that even if they underestimate their trading ability and take a really big loss due to leverage, they can never go into negative. So you can never owe money with an EU regulated broker.

On the other hand, an offshore broker will often offer you leverage as high as 1:999, just without protecting you from a negative balance. On the account that they are simply not required to offer a negative balance protection by their regulator. The combination of such a high leverage and the possibility of going into debt is thus a rather dangerous.


Another key aspect when it comes to choosing a broker. Every trustworthy broker should lay out its cards and show its trading conditions - i.e. what fees and commissions it charges its clients when trading and how much they pay for spreads or swaps. Fortunately, these details are commonplace these days and can be found on every broker's website. However, if you are looking for a true sign of transparency, try looking for more detailed data on a broker's website regarding the execution of its clients' orders.


A quality broker has often done a good job and is frequently mentioned in trading groups or forums. You often see its internet advertisements, hear about it through various evaluations of the best brokers or through the profitability of its clients.

Client care

A good broker takes care of his clients and helps them solve their problems. A great broker directly educates their clients and provides them with free webinars, ebooks or articles. A good indicator of quality can be various online comparison sites and reviews, but also sites such as Forex Peace Army or TrustPilot. A nice bonus for many of us can also be communication in your native language.

Try trading with a broker based on the pure STP model


Your capital is at risk.

Key terms

What is a brokerage house?
Show answer
It is a legal entity which conveys access to the capital market to its clients, therefore buys and sells stocks or other financial instruments on behalf of the clients and offers other related services. Brokerage house receives orders from clients and executes them on their behalf, which differentiates it from a dealer, which conducts trades on its own account. 
In the Czech Republic, the CNB  grants permission for this type of activity. Companies may only become a brokerage house via an investment firm or an investment tied agent. Purple Trading / L.F. Investment Limited has a tied agent registered in the Czech Republic. 
Who are the liquidity providers?
Show answer
Purple Trading offers liquidity aggregated by our liquidity providers from the largest world banks, several ECN pools and non-bank subjects of the exchange market. Please refer to the Order Execution policy for more details.
What is market maker broker, Is Purple Trading market maker, what is the difference between STP and market maker broker.
Show answer
Market maker broker is an individual market participant, that quotes buy and sell prices on its own. Market maker broker is on the opposite side of each trade. The goal of market maker broker is to make a profit on their clients based on a spread and the price of the instrument, that he creates. 
STP broker is not an individual market participant. All orders are routed to the brokers' liquidity providers, therefore, he is not on the opposite side of the trade and he is not creating prices by himself.
Purple Trading is an STP broker. As we believe that this is the right way to ensure a transparent and fair environment for all of our clients.
Show answer
A broker is an intermediary between the forex market and a client. The broker's clients are retail or professional traders.
Show answer
Commissions are the fees that the trader pays to the broker for arranging the trade. Some brokers do not charge commissions because their costs are covered in the spread. Brokers that do charge commissions, on the other hand, usually have very low spreads.
ECN broker
Show answer
ECN is the name for a broker that sends client orders directly to an interbank liquidity facility. In this case, the broker is the intermediary for the client.
Financial leverage
Show answer
A mechanism which enables traders to trade larger amounts even with smaller volume of free capital which would otherwise be insufficient for the trade, e.g., when trading 1 lot of currency pair EURUSD with leverage of 1:100, the client has to have at least 1,000 EUR of free capital on his/her trading account. Should the leverage not be used in this scenario, the client would need to have 100,000 USD on his/her trading account to cover the entire traded volume.

Market Maker Broker
Show answer
It is the designation for a broker that makes the market for íts clients. Such broker is often the counterparty to its clients. Purple Trading is not a market maker broker.
Liquidity provider
Show answer
Financial institution which provides liquidity to the brokerage company.
Show answer
Price difference between ASK and BID prices.
66.30 % of retail investors lose their capital when trading CFDs with this provider.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66.30 % of retail investors lose their capital when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.