Two Types of Forex Brokers

Anyone who wishes to engage in forex trading online will have to find a reliable and reputable broker to be able to conduct trades. Having the right broker will be crucial to success. There are basically two types of brokers. One has dealer desks, which are called Market Makers and the other is geared toward online traders, called ECN brokers, or Electronic Communication Network brokers. Each has benefits and disadvantages, so it is important to know the difference.

Market Makers are very popular and these serve as an intermediary to the bank market. These brokers do not have direct access to the market, but will operate by trading blocks of currency and then breaking up these blocks into smaller segments for individual traders. The disadvantage of this broker is that there is often a conflict of interest. When traders conduct a trade and lose money, it will go directly to the broker. Market Makers will maintain a currency pool that will allow them to be able to dictate the price.

The common problem with Market Makers is that the process may not be competitive because they are sourced singly. This means that traders will have to accept whatever the broker is offering. These brokers also have the ability to manipulate price spreads because they can earn large profits from the wide ranges.

While the drawbacks of Market Makers seem to outweigh the pros, these brokers are in fact a good choice. Traders just have to make sure the broker is operating ethically and honestly.

The other type of broker deals with the electronics communication networks and these do have direct access to inter-bank markets. This means that they will be able to offer competitive price quotes. ECN brokers will also offer real time quotes, which are not available with Market Maker brokers. The spreads and prices with ECN brokers are often more competitive because they are from different sources. In addition, these brokers do not have a vested interest in the trade and are not competing against their own clients.

When choosing a forex broker, consider these two options carefully., Make sure to do the appropriate research before investing with any broker and make sure they are operating in the best interest of the trader and are not just operating to create their own profits.

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