Forex trading takes place all over the world via an over-the-counter market rather than on a regulated exchange. You must work with a broker in order to access this market.
Depending on the broker you select, you’ll immediately understand that you have access to different trading conditions and exchange rates because the market is decentralized.
To become a successful Forex trader, it is crucial to select the proper broker that best suits your trading strategy and style. Always keep in mind that even if there are a lot of brokers that offer the same services, you should check a few things before you finally choose the broker that you will use.
First and foremost, you have to make sure that you are trading with a legitimate broker.
Another thing that you should check is if your broker offers the trading platform and account that best fit your trading style. Other factors such as what is the main currency of the account, technical support, and minimum deposit should also be checked.
There are several various types of brokers, namely Market Makers, and ECNs, therefore it is crucial to take this into account while picking one.
Market Maker vs. ECN broker
A market maker is a broker who “makes the markets” by fixing the bid and ask prices using its own methods, according to a simple definition. They then make these prices visible on their platforms so that traders may initiate and terminate trades.
Market Maker broker often does not hedge the positions of its clients with other market players. They pay profitable customer positions instead out of their own account. Additionally, it means that a Market Maker broker loses when a customer is profitable.
ECN tradingstands for Electronic Communication Network trading. Through interbank trading rates, this sort of broker gives their clients direct access to other market players. With the help of this network, exchange buyers and sellers may identify a counterparty for their current positions.
An ECN broker uses many liquidity providers to enable prices from these sources to compete in the same auction, which often results in traders receiving better pricing and more affordable trading circumstances. Additionally, traders often trade in a more effective and transparent environment when utilizing an ECN broker.
Typically, an ECN broker generates money by charging a commission on each position and profiting from the trading volume of its customers.
Here are some of the reasons why you should trade with an ECN broker:
The brokers in ECN trading never trade against their customers.
Your buying and selling orders are solely routed through an ECN broker, who connects you with other market players.
As a result, an ECN broker never takes the opposite side of your trading positions, which means that it never bets against you.
Due to the fact that an ECN broker receives a fee whether you earn money or lose it, this trading model guarantees that there are no conflicts of interest.