What type of Forex broker should we choose?

What type of Forex broker should we choose?
Choose your Forex broker.

 

Basic players on the currency market are the biggest World banks, which realize most of the income and trading transactions. They are trading together in the so-called Interbank market.

With the progress of the Internet technologies, currency trading among average people becomes more and more popular. Small investors or traders do not have a direct access to this market. They could make their trading by two types of brokers – market makers and brokers, using ECN (electronic communications networks) platforms.

Let’s look at the market makers first. The brokers alone determine the price for buy and sell to their clients who see these quotes on their platforms. In this way the opposite transaction appears, made by their clients. In other words – when you sell, they buy and vice versa.

The currency is defined by the market makers let by their own interests. It is supposed that they earn money by the spread (margin buy/sell), which appears to be a commission for their clients. In most cases, this spread is fixed by each broker.

As agents of the opposite transaction, they often hedge or cover the customer’s order to the market. But as it often happens, the market makers decide to hold the position and trade against their client. When they take the position against the client, this often causes conflict of interests in the order realizing. They can offer worse quotes from other brokers, to manipulate prices chasing customer stops, as well as to avoid reaching the limit orders for closing the profitable positions.

The market makers can often “move” the quotes according to other market levels. Besides, the realization of the left orders could be made by a wide margin in the stated price, when important news are announced or important events occur. It is possible the platforms of the brokers to lock in such rapid moments, limiting their clients from trading.

Many market makers do not like traders who scalp (making short-term transactions purposely for small change price), which may lead to their transferring  to a manual confirmation, analogically it follows lower realization and often requoting.

Some privileges of these brokers are that they ensure free graphic software as well as topical news. Also, these platforms are made to be convenient for the clients.

On the other hand, ECN brokers offer prices, formed by offers from other market sharers like banks, market makers or other companies, connected with their network, showing the best offers buy/sell.

In contrasts to the fixed spreads that are mainly offered by the market makers, here the spreads vary according to the trading activity and the offers. To a highly liquid trading such difference could even disappear, mainly in the frequently traded currency pairs – EUR/USD, USD/JPY and GBP/USD. These electronic networks make money as charging the customers with a small fee for each transaction. In this case, forex brokers do not define the prices, so there are no manipulations.

Here the advantage is the lower spread and that there could be brought offers in the present quotes. Usually prices are more dynamic, which is appropriate for scalping.

Some of the shortcomings are that their platforms are usually more professional and offer less “extras” and applications for the clients. Besides for the commissions that are charged , another drawback is that usually there is higher minimum for the traded quantity.

It should be noted that, because of the changing spread, as well as the higher volatility, it is risky to use stop or limited orders. The possibility to “slip up” in its realization is very high.

Each investor must choose the type of his broker, depending on the pattern of trade practices he uses and considering the asset and the negative sides in each of them.

 

 

Like this post? Please share to your friends:
ForexZig - Professional forex trading