ECN Forex Brokers v Market Maker Forex Brokers. What is the Difference?
One of the most intriguing issues in online Forex trading is the battle between ECN Forex Brokers v Market Maker Forex Brokers. In this post, we go over what are the differences and similarities between them and what the benefits for traders are.
Before you take the plunge and open a live forex trading account with a forex broker, you need to understand what TYPE of forex broker you are dealing with. All forex brokers are definitely not the same and this post is here to guide you through the different business models that forex brokers run.
In short, there are two main types of forex brokers who offer traders access to the forex market using completely different business models. Those being ECN Forex Brokers v Market Maker Forex Brokers.
ECN Forex Brokers
Trading with an ECN forex broker means that your interests are aligned with those of your broker. Which is obviously something that you want when you’re using a broker to execute you trades at the levels you are expecting.
An ECN forex broker passes your orders through to liquidity providers or the interbank market. This means your trades are actually being matched with other traders in the real market. They make money on the spread, meaning that they want active, profitable traders that will keep coming back for more.
ECN forex brokers aggregate a list of all the best bid and ask prices from liquidity providers (usually major banks and financial institutions) and match trades with the best possible prices and lowest possible spreads without considering the source.
Thereforex, an ECN forex broker can be seen as a middle man between buyers and sellers with no interest in manipulating prices.
We have awarded our best ECN forex broker award to Vantage FX!
Vantage FX – Best ECN Forex Broker
Market Maker Forex Brokers
On the other hand if your broker is a Market Maker, your interests are NOT aligned with those of your broker. This isn’t a good start, is it…
A market maker forex broker is essentially a bookie taking the opposite side of your trades. You are trading against them. When you open a position, they are the counterparty to your trade.
Market makers want losers. They want you to lose so they can pocket your account!
Think of a market maker as overlaying their own market on top of the real market. Your orders never actually reach the real market and you are only taking bets on an overlay that the market maker has provided for you. This is where price manipulation and stop hunting can and does occur.
Not all forex brokers are your enemy. …just market maker, bucket-shops based in Cyprus!
Market maker forex brokers are also sometimes called dealing desk forex brokers and are essentially an artificial type of broker because their prices offered don’t reflect the market directly. They simply quotes prices which are similar to what the market displays and is advantageous for their overall book.
Any order you enter is processed internally and never goes out to the market.
We have awarded our best market maker forex broker award to easyMarkets!
easyMarkets – Best Market Maker Forex Broker
When it comes to ECN Forex Brokers v Market Maker Forex Brokers, an ECN is the only type of a broker you should be looking to trade through. Forex traders have enough to worry about, without having to battle against the very company that is simply meant to be executing their trades.
Trade with other traders and financial institutions but not against your broker. Choose an ECN forex broker.