MM and ECN:
You aren't in the clear yet, if you have already figured out your forex trading strategy by now. Now comes the part where you get to pick the type of brokerage firm which will fit in seamlessly with your plan.
A forex broker in essence, is the one that may keep a watch on the markets for you, and acts up as your partner in setting up your orders.
There are only two important kinds of forex brokerage firms. Knowing their differences is important on your way to dominating the marketplace.
MM: Market Makers
What is important to comprehend about Market-makers are the fact they are the people who establish the bid price and the selling price. As your trading partner in buying or selling, you grant authority to them in handling your money.
An MM institution functions as an exclusive liquidity supplier, giving services that's otherwise not found on any other brokerage set ups. In simple terms, they sell for you too as buy for you.
Focusing on how MM makes a profit is straightforward. You buy from them, whenever you finally made a decision to buy. They then will go to other brokers and buy at somewhat better prices to sell to you. The difference in prices is their profit. Consider it as the trade in the job they've done you would have otherwise done yourself.
The advantages of MM:
1. They have set spreads, freeing you from the stress of the fluctuations in the marketplace.
2. Your orders are guaranteed, since they do the job as a partner.
3. They are generally user-friendly, understand and easy to obtain. Platforms and software are simple to obtain.
ECN: Electronic Communication Networks
Electronic Communication Networks on the other hand, place your order in a bid and lists all the asking prices for it. If your order is matched by their sell order, the selling prices come from many industry participants.
If there isn't any match, your order isn't going to push through. ECNs aren't obliged to fill your orders; rather, online forex trading it is up to you if you're going to agree on the other methods' bid/price.
The benefits of ECN:
1. Prices tend to be more aggressive, so scalping is ideal here.
3. Since there are many resources, bid / ask prices are better and more diverse than MM prices.
Picking which one to set your focus on depends entirely on the sort of strategy you might have, whether you plan to trade conservatively or vigorously. Different demands are fulfilled by different brokers, and the services they offer set them apart. These two are only the major types, and now you can seek out that broker that leans in the type you think will best work out for you.
The advantages of both aid lots of varied-believing forex traders utilize their strategies. A strong account is maintained by most of them on both to be able to optimize the potentials they have.
