Are Forex Markers Liars?
Over the past four years I’ve traded forex with quite a few brokers both in Australia and overseas, throughout this time I have experienced the very best and worst of the forex markets as well as the best and worst of forex providers in general. I’ve dealt with market makers, fixed spread providers and on electronic communication networks (ECN’s). Repeatedly I get asked which sort of forex broker type is best. To answer this question and share my experiences I made a decision to write this informative article on each type of forex broker model.
Fixed Spread Providers
There are quite a variety fixed spread forex brokers in Australia, a few have spreads as little as two pips on the EUR/USD. Buying and selling on a fixed spread can have its advantages and also disadvantages. Certainly one of the main advantages of buying and selling on a fixed spread is that traders are guaranteed consistent spreads throughout times of market volatility such as interest rate announcements. Volatile times are often the periods throughout which spreads can enlarge allot abruptly frequently catching amateur traders off guard.
Regardless of having the benefit of a set spread during market volatility, fixed spread providers will often quote wider spreads during quiet periods, frequently their spreads are much wider than those obtainable by market markers or ECN foreign exchange brokers.
Trading on a set spread is usually good for amateur traders who’re not yet accustomed to the wild price fluctuations of the forex market.
Market Makers
There are a few market markers that have given the rest a bad name by trading against their customers and profiting from client losses, however this isn’t everyday practice for all market makers only a select few. Usually market makers are able to offer relatively tight spreads across all main foreign exchange pairs, however it is important to understand that this not always true if you’re looking to buy and sell large parcels or buy and sell around announcements like interest rates or non-farm payroll.
Some market makers are known to enlarge their spreads by as much as fifty points during times of market instability, they regularly do this to guard themselves from scalpers trying to benefit from their tight spreads.
When deciding on a forex broker who is a market maker you will need to make sure that you do your homework and make certain that they are not one of the the minority that are in fact buying and selling in opposition to you and profiting from your losses.
ECN Providers
By far the most transparent foreign exchange broker model is an electronic communications network or ECN. An ECN provider simply aggregates the best price feeds from a few investment banks and always displays the best bid or offer. The majority of ECN providers will charge a commission as opposed to applying a spread to the natural market price this ensures that you’re trading on the genuine market price as set by the world’s leading investment banks.
There’s a lot of advantages of forex trading with an ECN provider probably the most noticeable being the spreads offered; regularly there is no spread or an inverted spread, these are prices not attainable from market markers or fixed spread providers. During volatile times an ECN forex broker will always show the best price obtainable, as ECN providers depend on a lot of investment banks who are actively trading over these periods you’ll always get the very best price and never be subject to tremendously wide spreads which you’d otherwise get with a market maker.
Naturally it is up to you to pick kind of forex provider which suits you best as each have their own unique advantages. You should make your decision based on the buying and selling strategy that you use plus your amount of understanding of the market. My personal preference is to trade with an ECN forex broker like IC Markets as I can be confident to receive the best pricing accessible.
Author: arfandia
This author has published 4725 articles so far. More info about the author is coming soon.
