Forex Brokers Explained
Most currency exchange brokers offering accounts to retail traders operate in one of 2 ways. It is improbable that you're going to be enrolling with a broker who has their own dealing desk. Much more likely, you will be taking a look at either an ECN broker or a market maker.
1. ECN currency exchange brokers
These companies use the Electronic Communication Network, a world online marketplace that caters for many different types of trader from retail to the gigantic banks and market makers. The spread on the ECN is small, often just about non existent, so brokers using this network will often either add a couple of pips to the genuine spread or charge commission or fees per deal. You can often improve costs from an ECN broker but take a close look at their fee structure and consider what it might mean for you on a normal deal.
ECN brokers are usually better for scalpers and can even welcome them because they're dealing directly with a gigantic market. Slippage isn't such a lot of an issue , either for scalping or at times of foreign exchange news reports. They're also usually well regulated.
On the downside, the variable spread can imply more uncertainty when setting stop losses and limit orders. ECN brokers also have a tendency to offer fewer charts and can have a less user friendly trading platform because they are not in particular aiming to attract beginners. They tend to say that you know what you are doing and have a paid subscription to do your technical research elsewhere.
If you're interested in ECN brokers check out FXOpen.
2. Currency market makers
Market makers usually offer you their own prices, based totally on the price that they are expecting to get on the ECN. When you open a deal they have to match it in the ECN to cover their risk. Clearly here there is room for the price to change in the moment between you clicking the button and the deal going on to the ECN. This is slippage. It can mean that you do not get the price that you expect, which can be a difficulty, especially for scalpers who are usually looking for miniscule profits from each trade. For this reason scalpers and market makers are not a good mix and may be unwelcome.
On the positive side, market makers can be a good choice for a beginner. They will sometimes provide good technical analysis, stories alerts, a user friendly platform and a demo account. They will always offer a mini currency trading account so that you can start trading with a couple of hundred dollars or less. This is a really vital factor for many new traders choosing forex brokers.
Tags: ecn brokers, Finance, forex broker, forex trading, fxopen, investing, makret makers, meta trader, money, traders