Foreign Exchange Brokers – an Introdction
Most foreign exchange brokers offering accounts to retail traders operate in one of 2 ways. It is doubtful that you’ll be signing up with a broker who has their own dealing desk. Much more likely, you’ll be looking at either an ECN broker or a market maker.
1. ECN forex brokers
These companies use the Electronic Communication Network, a worldwide online marketplace that caters for many differing types of trader from retail to the gigantic banks and market makers. The spread on the ECN is little, infrequently almost non existent, so brokers using this network will typically either add 2 pips to the genuine spread or charge commission or costs per deal. You can often get better prices from an ECN broker but take a detailed look at their fee structure and consider what it would mean for you on a standard deal.
ECN brokers are usually better for scalpers and may even welcome them because they’re dealing without delay with a big market. Slippage isn’t so much of an issue , either for scalping or at times of foreign exchange reports reports. They are also often well controlled.
On the other hand, the variable spread can imply more doubt when setting stop losses and limit orders. ECN brokers also tend to offer fewer charts and may have a less user friendly dealing system because they aren’t especially trying to attract amateurs. They generally tend to assume that you know what you do and have a paid subscription to do your technical analysis somewhere else.
If you’re interested in ECN brokers see FXOpen.
2. Foreign exchange market makers
Market makers usually offer you their own costs, based totally on the price that they expect to get on the ECN. When you open a deal they need to match it in the ECN to cover their risk. Obviously here there’s 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 are expecting, which can be an issue, especially for scalpers who are generally searching for miniscule profits from each trade. For that reason scalpers and market makers are not a good mix and might be unwelcome.
On the positive side, market makers could be a good choice for a newbie. They will often provide good technical research, news alerts, a user friendly platform and a demo account. They will almost always supply a mini currency trading account so you can start trading with a couple of hundred greenbacks or less. This is a significant factor for many new traders selecting forex brokers.
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