Ecn vs Market Maker in Comparison

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This article assumes some knowledge of how the forex market and forex broker to work. If you are not familiar with, we recommend you first read “the structure Forex Market” and “How Forex Broker Work” article. Contrary to popular belief, the ECN market maker is not better in every respect. There are advantages and disadvantages on both sides.
Minimum Balances
It is in the retail market makers out there today that the company is to begin the $ 1 pound.That’s not to say that this is a great feature, but it shows options for people who may not need the kind of money there to open an account Currenex. It’s a good thing, too, because the ECN contract sizes often a multiple of $ 1,000,000, and some ECNs are waiting for the daily amount of $ 25,000,000. Shackle with the way the minimum should, you better have enough capital (with a capital “C”).
ECNs do not allow the kind of high leverage, which is typical for the market maker. For most people this is no great loss, because it is not generally recommended, in the vicinity of leverage that is used in most of the retail market makers.
The transaction costs are
Did they call it the spread or the Commission is very important at the end – which must always, you pay to play. ECNs typically provide you with the prices they are to their liquidity, which are distributed in exactly the same spread, but a commission for each trade turn. This allows them to give large discounts for retailers to lower their costs, but most retailers, it is really important if they pay the Commission a tight spread, or the Commission has, the higher the spread. It works about the same, depending on the broker that you compare and what are the current spreads.
The potential volatility is higher, because ECNs unfiltered slice of the market. By some risk exposure, market makers generally to alleviate this. Depending on the type of trader you are, the volatility can be your friend or your enemy.
The stability of the business model
The fact that the market maker is a counterparty to many of its customers trades, it is the market risk. Although this risk managed with the appropriate coverage at a higher level of the other party, this can really be the case. In addition, although the risk is well managed, it is still a risk. ECN not to worry, because it only offers a service for which they requested the Commission. At no point in the ECN market risks. What this means is that the probability of insolvency of the ECN is much lower than the market maker. This has serious consequences for the client funds that he in his hand. On the other hand, market makers should not hold customer funds worth salt separated from the company working capital, the capitalized well and keeps a strict risk-management, that is relatively isolated, so that your customers the ability to broker bankruptcy.
Vulnerability to manipulation
Although ECNs to bring a “true” Participation in the market, the picture is not necessarily beautiful. Added transparency brings only light of a dog-eat-dog world, which is the Forex market. Trading in the Market Maker to you before, that to isolate something, but it can also hide that from you. It’s nice to have a guaranteed stops, though, and you can not find in any ECN. In principle, I think, ECNs are very experienced day traders and speculators, even if the market maker better than everyone else, as long as she was too “honest.”


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