Selecting the Right Broker

The Forex market is an unregulated market that is not trading through an exchange; this means that the prices that you see may vary from broker to broker. There are currently types of brokers these are Market – Maker and ECN (Electronic Communications Network)

Market-Makers “make” as the name suggests making or set the exchange prices based on what they think is good for themselves and their counter-party. This takes place because each time that you buy a currency pair. It is the broker that is selling to you. Because they are able to provide you with a fixed spread as they are receiving both the bid and ask spread at the same time. Many market makers will also seek to cover or hedge your order by passing it on to another broker, some will hold your order, and thus trade against you. Many times this creates a conflict of interest between you and the market maker.

The ECN broker, on the other hand, will pass on prices from various banks, market makers and other traders in the ECN, This allows them to display the best bid/ask prices based on inputs from the sources. For this reason, you may even end up getting no spread on an ECN especially for pairs that have high liquidity. ECNs make money through charging a fixed commission for each transaction.

Below are some advantages and disadvantages of ECNs and Market makers.

ECNs

Pros:

•    You will get a better bid/ask prices since the price feeds comes from various sources.

•    Different spreads between bid/ask this means no spreads or small spreads during high liquidity.

•    If they are a true ECN, your orders will be passed on to banks or other customers at the end of the transaction.

•    You will be able to locate an offer price just between the bid and ask.

•    If there is support for stop-limit order, this will prevent slippage when there are news releases.

•    Greater volatility makes it better for scalping.

Cons:

•    Many ECN brokers do not offer integrated charting or news

•    Trading platforms are not user friendly.

•    Varying spreads presents some amount of difficulties when calculating stop losses and profit targets.

Market-Makers

Pros:

•    Provides free charting software along with free newsfeeds

•    Prices are smooth as there is less volatility when compared ECN this is not suitable for persons who are scalping or trading for the short term.

•    Has user analysis and trading interface.

Cons:

•    They will trade against you. This creates conflict of interest.

•    Spreads are generally more than what is offered by an ECN broker.

•    They are able to trigger stops or not allow your trade to hit your profit target levels this is done through price manipulation.

•    At news releases, these are often large slippage in price. System will often lock up and not allow orders to be placed during these times.

•    They often discourage scalping by putting scalpers on manual execution this means that an order may not be filled at the price levels that you want.

Summary

Before you decide on choosing, you need to educate yourself properly about the pros and cons of each broker this way, you can choose the one that suits your needs. LTG GoldRock Reviews on different brokers along with LTG Educational services. It’s also a good idea to have multiple broker accounts so as to mitigate your risk. This way you will also be able to compare bid/ask prices on various platforms.