Almost everyone knows the potential that stock markets offer and everyone wants to write their own success story. Let’s admit it, the money markets conjure a glamorous notion in all of us. Whether you are thinking about starting up or have spent many a years trading in the bourses, the question of which is better – market markers or ECN Forex Broker – keeps chasing you.
So which is it? Are you better off with seeking investment advice from market markers or are ECN Forex Brokers the way to go for you? To reach a better conclusion, as with everything related to money markets and Forex trading, it is imperative to understand both advisory instruments. After all, it is your hard earned money.
Traditional Forex broker vs. ECN Forex broker
If you gave trading in the stock or Forex markets a shot in the past, chances are, you did so at the advice of a broker. While it sounds like the logical way to proceed, most retail investors have had at least one bad experience with their Forex broker. While the reasons may be many, the primary reason of mistrust between brokers and investors is the opaque nature of the brokering business.
Electronic Communication Networks or ECNs on the other hand, act as a bridge that links smaller market participants, like retail investors, with tier-1 liquidity providers through an ECN Forex Broker using sophisticated technology setup called FIX Protocol (Financial Information Exchange Protocol). The process is far more transparent – what you see is what you get. The ECN Forex Broker obtains cash for the transaction from their liquidity provider (a major bank or financial institution), and delivers client’s order to them for execution, benefiting from commission fees for each transaction, making it a volumes business for them.
The elements of Forex trade
Markets fluctuate at the slightest hint of news from many quarters – central banks, economic reports from finance ministries, news from major financial institutions, etc. Such news can often cause an adverse reaction from the markets. Couple that with the market markers’ need to cover their positions through their liquidity provider, or by putting a trade into the pool and then cover their position through their liquidity provider equal to their own position, or by just holding on to a position, assuming that it is likely to take a loss anyway, resulting in a process that delivers a relative price of the currency to the investors.
With ECN, the ECN Forex Broker request for a currency at the market price is processed as such – at the market price. However, there is the swiftness in the market movements to account for. The split second it takes to decide on buying or selling a currency at a specific price, and putting that market order in, the price often change.
While traditional Forex brokers are not a thing of the past, ECN Forex brokers are a move in the right direction for investors as they get better transparency in their Forex trade positions. That said, some market markers offer a safety net to small investors by guaranteeing no negative balance in their accounts, something that the ECN Fx brokers cannot offer. However, if you are an active foreign exchange trader, ECN is likely to be a more lucrative option with its promise of better transparency and provisions of trading on tight spreads in normal market conditions
Source: http://www.fideliscm.com
So which is it? Are you better off with seeking investment advice from market markers or are ECN Forex Brokers the way to go for you? To reach a better conclusion, as with everything related to money markets and Forex trading, it is imperative to understand both advisory instruments. After all, it is your hard earned money.
Traditional Forex broker vs. ECN Forex broker
If you gave trading in the stock or Forex markets a shot in the past, chances are, you did so at the advice of a broker. While it sounds like the logical way to proceed, most retail investors have had at least one bad experience with their Forex broker. While the reasons may be many, the primary reason of mistrust between brokers and investors is the opaque nature of the brokering business.
Electronic Communication Networks or ECNs on the other hand, act as a bridge that links smaller market participants, like retail investors, with tier-1 liquidity providers through an ECN Forex Broker using sophisticated technology setup called FIX Protocol (Financial Information Exchange Protocol). The process is far more transparent – what you see is what you get. The ECN Forex Broker obtains cash for the transaction from their liquidity provider (a major bank or financial institution), and delivers client’s order to them for execution, benefiting from commission fees for each transaction, making it a volumes business for them.
The elements of Forex trade
Markets fluctuate at the slightest hint of news from many quarters – central banks, economic reports from finance ministries, news from major financial institutions, etc. Such news can often cause an adverse reaction from the markets. Couple that with the market markers’ need to cover their positions through their liquidity provider, or by putting a trade into the pool and then cover their position through their liquidity provider equal to their own position, or by just holding on to a position, assuming that it is likely to take a loss anyway, resulting in a process that delivers a relative price of the currency to the investors.
With ECN, the ECN Forex Broker request for a currency at the market price is processed as such – at the market price. However, there is the swiftness in the market movements to account for. The split second it takes to decide on buying or selling a currency at a specific price, and putting that market order in, the price often change.
While traditional Forex brokers are not a thing of the past, ECN Forex brokers are a move in the right direction for investors as they get better transparency in their Forex trade positions. That said, some market markers offer a safety net to small investors by guaranteeing no negative balance in their accounts, something that the ECN Fx brokers cannot offer. However, if you are an active foreign exchange trader, ECN is likely to be a more lucrative option with its promise of better transparency and provisions of trading on tight spreads in normal market conditions
Source: http://www.fideliscm.com
