Market Maker vs ECN

Any trader that has some experience with the Forex market will know that there are advantages and disadvantages to just about everything in the market. The same holds true for Market Makers as well as ECNs. Many traders will believe that ECNs are superior to the Market Maker, but this is not true as there are some downfalls to both. By learning about the pros and cons of each, traders can make better decisions and use the right tools when they are trading, which can result in more profits and fewer losses in the market.

Many of the retail market makers will allow traders to start with just $1 in their account. This may be appealing to beginners, but it will not offer the best options for those that may not have more money to invest. ECN contracts are often in multiples of $1 million and with these minimums, it is apparent which is the choice for low value traders and those that have much more money to invest.

With ECNs, trades will not enjoy the high leverage that is often found with market makers. For many, this is not a great loss since it not advised to use much leverage, but for those that do benefit from leverage with trades, they should consider market makers over ECNs.

The cost of the transaction is also a consideration. ECNs will offer the prices right from the liquidity providers and will ten charge a commission for every trade. This allows discounts to be given to those that trade in high volume, which can lower costs overall for the trader. The difference between the trading costs with market makers and ECNS is paying a commission with a tight spread or having no commission with a high spread.

Volatility plays an important role for traders and in some cases it will be a friend and in others an enemy. It all depends on the type of trader. The volatility with ECNs will usually be higher, however, by chancing some market maker exposure, some of this can be reduced.

No matter what traders are investing or what type of trader they are, ECNs and market makers can both offer benefits as well as drawbacks. Take some time to review both and see which is best. Some traders will mix up the use of ECNs and market makers depending on the type of trade they are conducting and its overall value.

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