How to Choose a Broker in Foreign Exchange
As everyone knows, the world of foreign exchange market is the type of market that is non-regulated. This means that a price you will get from a specific broker could be different from the other brokers in the Foreign exchange market. Two types of forex brokers exist in the forex market. One is called the Electronic Communications Network while the other is known as the Market-maker.
The market-maker, from the words itself, makes or gives out the price on the basis of what is best for their company. On the other hand, the ECN pass the price first from the market makers and several banks and other ECN traders and displays the prices on the basis of gathered input. They make money by changing a commission for every transaction.
The advantages of market makers are they usually offer free newsfeed and charting. The prices of this type of broker are less volatile and smoother than ECN. They also have a user-friendly type of trading environment.
The disadvantages of market makers are as follows: there is a tendency that they may go and trade against a specific individual. In this case, conflict will arise between the market makers and you. Another disadvantage is that the quoted price may be bad than what you can avail from the ECN. There is also a possibility of price manipulation which in turn will stop your trade from attaining the target profit.
The Electronic Communications Network has advantages and disadvantages as well. The advantages are the process or bids are usually better from other sources. The variation in the bid and ask may give a very little spreads or sometimes no spreads at all. The ECN will pass the said order from one specific bank to another therefore trading against a trader is prevented.
ECN also has its negative effects. A lot of ECN do not give out integrated charting and news.
It is very essential that a trader should carefully take into consideration the advantages as well as the disadvantages of a broker before deciding which one is best and suits you. Comparing the bid and ask prices is also a good thing to remember. Since the foreign exchange market is unregulated as much as possible, do not deposit big amount of money to the broker, if your profit already exceeded the target profit, withdraw the said profit first and keep it on your secured bank account to ensure the safety of your money.
Based on all the above observations, both the market-maker and ECN has its own advantages and disadvantages in the world of Forex exchange. It is already up to the trader on which suites one's preference.