Two Kinds of Forex Broker: Which Forex Broker is Right for You ?

There are two major types of Forex brokers, and which one is best for you can depend on your specific trading strategies. There are Market Makers (MM) and Electronic Communications Network (ECN) in the Forex market, and knowing the difference between the two is extremely important if you want to be a successful Forex trader.

Market Makers (MM) are brokerage firms that set both the asking price and the bid price. This means that a Market Makers sets up every part of your trade. No matter if you are buying or selling, the Market Makers is your trading partner and taking the other side of that trade, therefore ensuring that your trade will go through.

Electronic Communications Networks (ECNs) take the bid and ask prices from several different market participants and then the bid and ask prices are displayed as bid/ask quotes. When you place an order to buy, it's matched with a sell order set at the same price. If there is no match, then your order simply will not take place because you will have no partner to trade under those terms. Unlike the Market Makers, the broker in an ECN does not take the other side of the trade and is under no obligation to do so. The partner ends up being whatever trader wants to go the other way with the same currency pair.

Market Makers:

Pros:

• Most market makers have set spreads.
• Market makers normally have user-friendly, downloadable trading platforms that include free charting software
• MMs, since they are your trading partner, tend to guarantee that your orders will almost always be filled.
  

Cons:

• They will trade against you (big problem), they may just trigger your stop loss if it's small
• There may be huge slippage during news release and orders may not be allowed during high volatility
• The price they offer you may be less attractive than ECN and orders may not be filled at the price you wanted
  

Electronic Communications Networks:

Pros:

• You may get the best price since the prices come from different sources
• Scalping forex strategy may be viable as the prices are more volatile
• Slippage can be prevented during news release if the ECN supports Stop-Limit orders
• If they are a true ECN, they will not be trading against you but pass your order to other customers or other banks
  

Cons:

• Their trading platforms are not as user-friendly and will take more time to learn and get used to it
• Many ECNs do not offer integrated news feeds
• Many do not offer integrated forex charts
• Stop loss and profit targets may be more difficult to calculate as the spreads are variable
  

Many traders who use diverse styles of trading will have accounts with both types of brokers. Knowing the differences between these broker types will help you know how to have the best set up for each type of trading strategy your system calls for you to use. For some, the Market Makers is a better choice, while for others an Electronic Communications Networks clearly reigns supreme.

Once you intimately know the pros and cons of both types of Forex brokers you'll be one step closer to being ready to learn to make a killing in the Forex market.

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