All market makers in forex trading are not the same. Once you have made up your mind that a market maker is your only choice to access the forex market to trade, the ECN brokerage is the most reliable. A market maker is a brokerage company that is available to do trading with a fixed bid and ask price. There are three different types of forex brokers.
• Electronic Communication Network
• No Dealing Desk
• Straight Through Processing
Of all these three types, the ECN forex broker provides the purest form of forex trading. It is the closest you can get to forex trading in the market on level with the central banks. The ECN broker charges spreads for services on each trade. It is because of this charge that there is no conflict of interest which is found in most forex trading models at the retail level.
When you open a position with an ECN forex broker, this is sent straight into the interbank market where it will be matched with an opposing order from another market trader like yourself. This is similar to the way the futures markets function in a central exchange. The ECN forex broker acts as a counter party to the transaction. The broker matches buyers and sellers in the interbank liquidity market for transparent trading. The broker will also offer variable spreads instead of fixed spreads and these spreads vary depending on the currency market. Both volatility and volumes are subject to fluctuation. The prices that are quoted will be quite close to those being traded. This way, the ECN forex broker makes his or her profit from the commission on the trade and not by adding a margin on the spread. This removes the conflict of interest issue, allowing you to trade in the interbank market at true market prices and in real time.
These are the advantages of using an ECN forex broker:
• Trading is done by using the best bid and asking quotes that are live and direct from the interbank market.
• Spreads are tight, going down even to zero at times.
• The forex broker will not take a position against you or manipulate the price feeds.
• The broker will not take out your stops.
• The price quoted will be more volatile and quite helpful for scalping strategies.
• There is direct access to the interbank market for forex real time trading.
These are the disadvantages of using an ECN forex broker:
• The forex demonstration platform may be more complicated and not designed easy for some retail traders.
• The brokers may not offer free forex charts.
• There will be limited trading signals and facilities such as trading tools and news feeds.
• There is a spread commission on each trade.
So, with an ECN trading model, there is no price manipulation and the traded prices are a true reflection of what the currency markets are doing at any given point in time. ECN forex broker is rapidly becoming popular because of the increased reliability and transparency.