Differences Between Market Makers vs ECN in Forex Trading Broker

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Who is the best broker to trade forex with, a market maker or ECN ? Market makers in forex are brokers that operate by making or setting both the bidding and the asking prices on their networks prior to publicly displaying them on their particular quote screens. These brokers make transactions on those prices they set with their clients, who range from retail forex traders to banks. By doing this, these brokers offer some liquidity to the monetary market.

ECN or Economic Communications Network brokers in forex are brokers that operate their business model by passing traders’ orders directly to the liquidity giver.

Though the prime role of both market makers and ECN brokers is to help traders utilizing their particular services trade forex successfully, their way of operation vary. These brokers provide their traders with access to the financial market using business models that are completely different. Therefore, if you are a forex trader and wondering whether to cooperate with a market maker or ECN broker, it is vital you compare the features of both of them so that you can know the one that has solutions which suit your trading needs accordingly.

How an ECN Forex Broker Works

As a forex trader, when you trade with an Electronic Communications Network broker, your interests will be aligned with the ones of the broker you cooperate with. Your ECN broker will always pass your order through the interbank market or to liquidity providers. This means your trades will always be matched with those of other traders in the actual market. ECN forex brokers make their income on the spread, and this is the reason why these brokers consider dealing with active, profitable traders who will always consider coming back for more.

How a Market Maker Forex Broker Works

If you will collaborate with a market maker broker as a forex trader, it means your interests will not be aligned in any way with those of the broker you choose. A market maker generally is a bookie that takes the opposing side of the trades you make. This means these brokers will always want their clients to lose in order to pocket their account.

Pros of Choosing a Market Maker as your Forex Broker

1. Free News Feeds and Charting Software

Market makers offer their clients a trading platform that is not only accompanied with free charting software, but also news feeds.

2. User-Friendly Platforms

Market Makers have trading platforms which are somewhat more user-friendly when compared with those of other brokers. As a trader utilizing the services of this kind of broker, you will access a platform that is easy to interpret and navigate and hence have an easier and enjoyable moment when trading forex.

3. Less Volatile Currency Price

The currency price movements on the platforms of market makers is often less volatile when compared to the currency prices quoted on the systems of Electronic Communications Network forex brokers.

Cons of Trading Forex with a Marker Maker Broker

  • Trading Against You

In matters connected with order execution, market makers can end up presenting a direct conflict of interest since they can consider trading against you.

  • Displaying Worse Ask/Bid Prices

These kinds of brokers can also choose to display worse ask/bid prices compared to what you could get from any ECN forex broker.

  • Manipulating Currency Prices

Market makers can decide to exploit currency prices in order to run their clients’ stops or as a way of ensuring their clients’ trades do not reach profit objectives. These brokers in some scenarios can move their currency rates 10-15 pips away from the other market quotes.

Pros of Choosing an ECN as your Forex Broker

1. Better Ask/Bid Prices

When trading forex with an ECN broker like Pepperstone, you will often get better ask/bid prices since they are produced from various sources.

2. Cannot Trade Against you

A genuine ECN broker cannot in any way trade against you. This is because ECN brokers are always required to pass their clients’ orders to a financial institution or another client on the opposing side of the deal.

Cons of Trading Forex with an ECN Broker

  • The trading platforms of ECN brokers tend not to be user-friendly.
  • As a trader utilizing the services of an ECN broker, you will always be required to pay commission for each transaction you make.
  • Most ECN brokers do not provide their clients with integrated charting software and news feeds.

Bottom Line

Based on the aforesaid facts, it is now obvious that trading forex with a market maker or ECN broker can expose you to both merits and demerits. Since both of these brokers can significantly influence your trading performance, make sure you research and compare carefully their terms of operation so that you can figure out the one that will suit your trading needs better.


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