Currency Exchange Brokers – an Introdction
Posted by kchickeymonkeyMost foreign exchange brokers offering accounts to retail traders operate in one of 2 ways. It is unlikely that you’re going to be enrolling with a broker who has their own dealing desk. Rather more likely, you will be looking at either an ECN broker or a market maker.
1. ECN foreign exchange brokers
These firms use the Electronic Communication Network, a worldwide online marketplace that caters for many different sorts of trader from retail to the gigantic banks and market makers. The spread on the ECN is small, sometimes about non existent, so brokers using this network will usually either add 2 pips to the real spread or charge commission or charges per deal. You can often get better costs from an ECN broker but take an in depth look at their fee structure and consider what it might mean to you on a normal deal.
ECN brokers are usually better for scalpers and will even welcome them because they are dealing without delay with a massive market. Slippage isn’t such a lot of an issue , either for scalping or at times of currency exchange news reports. They’re also sometimes well regulated.
On the other hand, the variable spread can mean more doubt when setting stop losses and limit orders. ECN brokers also have a tendency to offer fewer charts and can have a less user friendly dealing system because they aren’t specifically aiming to attract amateurs. They generally tend to assume that you know what you do and have a paid subscription to do your technical research elsewhere.
For ECN brokers check out FXOpen.
2. Foreign exchange market makers
Market makers sometimes offer you their own costs, 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. Obviously 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 imply that you don’t get the price that you expect, which can be a difficulty, especially for scalpers who are usually hunting for miniscule profits from each trade. Because of this scalpers and market makers are not a good mix and may be unwelcome.
On the positive side, market makers could be a good choice for an amateur. They will often provide good technical analysis, reports 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 few hundred dollars or less. This is a important factor for many new traders selecting forex brokers.
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