Features And Types Of Forex Brokers

                                                                               

forex broker

                                       


Since forex is an open market and not traded in an exchange, it may be described as an unregulated market. It may lead to variation in prices i.e. the price you get from a particular broker may differ from another. 

Choosing the right broker is crucial for your success in forex. It involves a lot of time and risks too, specially when so many forex brokers are available in the internet. 

Since, the forex market is not equipped with stringent regulations and guidelines for operation of forex brokers, it gives opportunity to unscrupulous and dishonest brokers to adopt unethical means to manipulate trades of individual clients to increase their own profit. 

So, it can be clearly imagined how important it is to choose the right broker for success. Forex brokers may be mainly classified into two groups :-




Market Makers(MMs): This is the most common type and the vast majority of forex brokers fall in this category. These type of brokers do not have direct access to the market and function as an intermediary to the inter-bank market. They trade in large blocks of currency on the inter-bank market and then breaking them into smaller units for small individual traders. 


Many traders believe, when an individual trader loses money in a trade it goes to the broker. Individual traders usually have to accept prices their brokers offer to them. As these prices are single sourced they may not be competitive also. 

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Since, these powerful forex market makers maintain their own currency pool, they are capable of dictating the price feed(bid/ask) leading to spike prices, manipulate spreads and ultimately triggering the ‘stop loss’. However, there are advantages of these type of brokers also, specially when free charting software, updated news and user friendly analytical interface are taken into consideration. 

The Pros & Cons of these type of brokers may be divided as follows :

Pros:
  • Individual traders are supplied with free charting software and news feed
  • Prices they quote are likely to be less volatile when compared to ECN Brokers
  • They also offer user friendly interface


Cons:

  • They can always take a position against you.
  • They are likely to adopt unethical means to manipulate prices and triggering stops to prevent you from reaching targets and that’s only because they have taken a losing position against you 
  • The prices they offer may sometimes be far worse than ECN Brokers
  • They usually discourage scalping by having a minimum ‘stop loss’ in place otherwise scalping execution may be complicated


ECN Brokers (Electronic Communications Network):


Electronic communication network offer direct access to inter-bank markets. They have access to multiple banking sources and are always better placed to offer competitive price quotes to individual traders in forex market. These sort of brokers offer individual traders the ability to post their own bid/ask rates. 

Consequently, the individual traders find multiple bid/ask prices offered by fellow spot traders and liquidity providers(banks) and not by forex brokers. In the absence of conflict of interest there is little reason for ECN traders to go for unethical practices. These days, the number of ECN brokers are increasing rapidly indicating their increasing popularity among individual traders.


Pros:
  • You may expect superb bid/ask prices as they are not single sources and come from different institutions including banks
  • Spreads between bid and ask prices may be very small or almost zero
  • They will never create a position against your and on the contrary pass on your orders to a bank or other fellow customers 
  • You may easily offer a price between bid and ask and may expect of it getting filled 
  • You can prevent slippage by making sure that your order either gets filled at the prices you offered or not at all
  • Prices may be more volatile which is better for scalping 


Cons :
  • Most of them do not offer latest updated news in forex market
  • Most of them fail to offer integrated charting software