This topic has been discussed plenty times in traders' community. But there is no clear idea why it is so important for a Forex broker to send trades of clients to liquidity providers (usually large banks).
On exchange, each client concludes a transaction with another client. You cannot know for sure which contractor processes your request, but order book will show you volume of supply. If your request does not reach order book, you won't see any changes and it means that your request has not reached it.
In fact, it means that a Forex broker did not fulfill its duties on sending your request to the interbank market and your profit … will be broker's out-of-pocket cost. Since your request has reached only broker, it is your sole contractor. In other words, you made a bet: your broker tells that a trade won't go to your side and you say the opposite.
What does it mean?
Firstly, you are deceived. As a client, you believe that your request went to the market and think that your profit will be paid by one of banks. Secondly, in this controversy another party dominates: it keeps your money, you play its rules and trade its quotes. It is very easy for a broker to draw your Stop Out or widen spread in the moment you open a trade. This controversy is called competing interests. Will you open account with such a “broker”? - Of course, no. But you won't be informed about this scheme.
Now let's to the Forex. Here the situation is different: in 95% cases you will not see order book.
Banks and big corporations exchange currency with the help of the FIX-protocol. The program which would enable to see requests of banks is rarely provided and expensive. Therefore, working under
FIX- protocol is expensive and in short supply. If you can access order book, but trading on it is only available from 10000 USD. But as a rule, you will obtain access only if your trading volume is within 500 -1000.
If so, what is the difference between scam broker and regular broker? They give the same trading terminal and both are silent about their providers. The difference is that you never have withdrawal troubles trading with a normal broker.