Forex Market Maker vs. ECN

Understanding the difference between a Forex market maker and an ECN is critical when choosing a Forex broker. Most Forex brokers fall into one of these two categories and when you are choosing a broker, you need to know which type of broker you have. Here are a few things to consider about these two types of Forex brokers.

What is a Forex Market Maker?

When you want to trade Forex online and you choose a broker to work with, chances are good that you are working with a market maker. The majority of Forex brokers fall into this category.

Basically, this means that the broker is setting both the bid and the ask price in a transaction. When you place an order, the market maker typically holds your order and then closes it when you close it out.

In this situation, the broker is essentially taking the opposite position of your trade. This means that your broker is trading against you every time you open a trade. When you win, the broker loses. When you lose money...well, you get the point.

What is an ECN?

The ECN or Electronic Communications Network is a type of broker that uses an automated system to put your order into the market. When you open a trade, the ECN matches you up with a counter party to trade against almost instantly. With this type of trading, you are not trading against your broker. ECNs use liquidity providers to find you someone to trade against. While this type of broker is not as common as the other, you can find them in the market.

How Brokers Are Compensated

one of the key differences between these two types of brokers is in how they are compensated. Market makers are compensated by the Forex spread. The difference between the bid and the ask price is where they make their money.

With an ECN, you pay them a commission each time you place a trade. In some cases, you may pay a small spread or you might not have to worry about spreads.

Which One is Better?

When it comes to Forex trading, one type of broker is not necessarily better than the other. The type of broker you need will vary depending on your situation and what type of strategy you use.

If you like the idea of fixed spreads and a smooth price feed, a Forex market maker is probably the way to go. If you like the idea of low spreads and you don't think having a constant conflict of interest with your broker is a good thing...the ECN is for you.

If you are a scalper, the ECN might be better for you. Price feeds with ECNs are more volatile, which provides an up and down market. This allows you to grab pips while the market is fluctuating.

Before choosing a broker, you need to determine what is most important to you. When you trade an ECN, your order is truly going out into the market and you are getting a more raw price feed. Trading with market makers is a more "sheltered" environment in which you basically trade against your broker all the time. Pick your poison. Either way, you could make money with a good strategy. Just remember that if the strategy is too good, your broker might not like losing against you every time.

Opening an Account

When you've done your homework and you're ready to open an account, I'd recommend opening it through a program called Cashback Forex. It's a program that doesn't require you to do anything different than you would normally do and you get to make money for doing it. You simply open an account with the broker of your choice, start trading and then you get a percentage paid back to you for all the trades you make. It's kind of like credit card rewards, except it adds up a lot faster. You can gain access to market makers and ECN's through the program. Just click on the banner below and check out what it's all about.

Return From Forex Market Maker to Forex Brokers

Return From Forex Market Maker to Forex Trading