Tuesday, October 26, 2010

ECN Forex Brokers Or Market Maker

In the world of forex trading, there are basically two types of brokers. The marker type or the ECN forex brokers. Let look at them now.
For Market Maker Broker, They are authorized to create and maintain a market in an instrument. These people are usually a bank or a brokerage firm that will get quotes on both a buy and sell price base on the market. They will try to make a profit with the trades or from the bid/offer spreads. These market markers are important people as they can be maintaining the liquidity and efficiency for the particular financial instrument because they also take part in the market and hopefully making some small profits on the bid/ask offer spread. They usually takes on the other side of the trade and would usually widen the spread at volatile times. Although they claim to charge no commissions, in fact they are making some commissions depending on the currency traded.
For ECN forex brokers, they do not have a dealing desk. They offer a computerized trading option to the traders. ECN forex brokers stands for Electronic Communications Network. Traders can usually get better bids/offers and spreads when trading with them. They have more liquidity for the traders. You can get good spreads from just 0.5 - 2 pips depending on how exotic your currency is. You can see that ECN forex brokers are having much more advantage when you are talking about the commissions they earn comparing to market maker brokers. However, they do not that the other side of the trades like market makers do. They only allow trades to be done electronically online.
You can also become a market marker yourself using ECN forex brokers. Just place your order inside the spread or outside and see if they are taken up by on of those liquidity providers.



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1 comment:

  1. I would like to advise that you use the ultimate Forex broker - eToro.

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