why Choosing a Forex Broker ?

As you may already know, foreign exchange (Forex/FX) is an unregulated market that is not traded on an exchange, which means that prices you see and get from one broker could vary from those of another broker. There are mainly two types of brokers. One type is an ECN (Electronic Communications Network) and another a Market-Maker.

Market-makers “make” or set the prices on their systems based on what they think is best for themselves as the counter-party. This is because every time you sell, they must buy, and when you buy, they must sell to you. This is why they can give you a fixed spread since they are setting both the bid and the ask price. Many of them will then try to “hedge” or “cover” your order by passing it on to someone else; however, some may decide to hold your order, and thus trade against you. This can result in a conflict of interest between the retail trader (you) and the market-maker.

ECNs, on the other hand, pass on prices from several banks and market-makers, as well as from the other traders in the ECN, and display the best bid/ask prices based on these input. This is why sometimes you can get no spread on ECNs, especially in very liquid currency pairs. How do ECNs make money then? They do so by charging you a fixed commission for each transaction.

Here are some of the pros and cons of ECNs and market-makers:

Market-Makers

Pros:

Usually give free charting software and news feed

Prices can be “smoother” and less volatile than ECN prices (this can be a con if you are scalping or trading very short term)

Often have a more user-friendly trading and analysis interface

Cons:

They may trade against you. In that case, there will be a conflict of interest between you and them

The price they offer you may be worse than what you could get on an ECN

It is possible that they may trigger stops or not let your trade reach your profit target levels by manipulating prices

During news, there will usually be a large amount of slippage; their systems may also lock up or not allow order placing during times of high volatility

Many of them discourage scalping and put scalpers on “manual execution” which means their orders may not get filled at the price they want

Examples of some market-makers:

ECNs

Pros:

You can usually get better bid/ask prices since they come from several sources

Variable spreads between bid and ask may give no spread or tiny spreads at times

If they are a true ECN, they will not be trading against you but will pass on your orders to a bank or another customer on the other end of the transaction.

You will be able to offer a price between the bid and ask with a chance of it getting filled

If they support Stop-Limit orders, you can prevent slippage during news by making sure that your order either gets filled at the price you want or not at all

Prices may be more volatile which will be better for scalping

Cons:

Many do not offer integrated charting

Many do not offer integrated news

Many of the trading platforms are less user-friendly

Because of variable spreads (between bid and ask,) it may be more difficult to calculate stop loss and profit target in pips beforehand.