My understanding is that there are two types of brokers � ECN and market makers. What I read about them is that ECN brokers charge commissions and market makers make money by taking positions against your trades and cashing on spreads.
The notion I am getting is that ECN brokers are sort of “safer”. Is it true in reality given equal circumstances and the fact that markets are not safe in general?
I would appreciate if traders who dealt with both types of brokers shared their comparative experiences from practical standpoints. In particular, what is real cumulative effect of commissions on profitability? I mean, I understand that if broker charges $4/trade and I make 100 trades I will need to compensate for $400 in commissions. But how does it compare in reality to �losses� due to pip spreads market makers implement?
Of course ECN brokers are better simply because they are interested in your profits (more you gain, more comission you make for them). MM are good to start because they propose simple conditions like fixed spreads, very small starting deposit very low and micro lots. You need t understand that all your trades on this accounts will never reach real market and stay in house (do not believe if someone says oposite), but if you use reliable MM then it will be no problem. You need to be ready, that when you start to make profit with MM your trading conditions will become worst nad worst, because you trade against broker. So, for profitable traders or traders with higher deposits there is the only way is to use ECN broker, but make sure you will choose true ECN brker, there are several indicators:
Spreads. Never ever there will be fixed spreads on ECN. Spreads is something which is not set by broker in real market it is just a difference between SELL and BUY price which is always floating and depends from the liquidity for the current moment.
Commissions. ECN brokers make profits from comission only! Do not believe if anyone say that it is ECN broker making profit from the spread
MarketDepth. Be very carefull, and be noticed that there is only one MArketDepth way and explanation which is right: "Market depth by definition, shows the quantity of bids and asks on both sides of the market in volumes of liquidity. Its always in digits and the result of liquidity at a certain level being eaten up = 1 tick " , so in other words you will see how many LOTS for SELL and buy are available for the specific price, usually several prices (Level), MarketDepth can be different , 10 levels for example.
There is nothing to hedge if the broker is ECN. Recently some brokers trying to mislead people with fake sence of MArketDepth but you need to remember 1 thing only, in ECN system volume of SELL orders always equal for volume of BUY orders, ALWAYS! If someone say that it is ECN broker and they have more volume SELL or BUY orders it is not true or it is not ECN broker
Your limit orders will change a spread for all participants of ECN system.
These are simple tips for choosing true ECN broker, make own conclusions.
I think it is unfair to paint all market makers with the same brush and say that they always trade against you. I know how market makers work and have traded with one recently where I have trebled my account (legitmately) and they are fine with me. Usually I would get kicked out but it seems they have hedging policies on there dealing desks which cater for all types of clients.
I am not sure that advertising is very welcome here:)
To choose ECN broker is not simple, I think you will need to try several before choose one.
Usually they have higher initial depsoits in the range of 1K to 50K to start. There always should be DOM (Depth of Marketh Module) and make sure it is real one (you limit orders should be seen in DOM if you add then inside the spread). All ECN bokers welcome scalpers because they get a lot of commisisons from them, so if you see something like "Company may delete your order if it was shorter then 2 minutes…1 minute, 10 seconds, 1 hour e.t.c ", in ECN system you can open close whenever you like as much orders as you like as long as there is enough liquidity. You will never find fixed spreads in ECN broker becuase it is impossible and be ready that spreads might be widen during the news, so better watch out but in 99% of the cases spreads will be lower than at MM. And forget about re-quotes in ECN system, this is something from MM.
There are some reliable MM which will allow you to make some profits but sooner or later trading conditions will become worse so better to start with ECN broker. Nowadays you can find several good one with reasonable initial depsoit to start. P.S. Agree with you…trading is much better.
GTR Power, if you make a claim that would be very nice of to give some supporting details. Now it’s just like making unsubstantiated statements: you say MM is bad but at the same time you’re not against it, you say there are lots of good ECN brokers, but no examples claiming advertisement is not appreciated here (though it is in order for us to learn more)
Thanks
HI guys
If you know the market and you know what is a MM you can eventually do fine, you can still profit.
But ECN brokers r better in my opinion, I mean if you have the choice, and they offer similar conditions then…
I recently found a nice broker, called fxopen, it is ECN and offers free demo, which is meta4 by the way, so you can try it.
I advice not to start with a mini account, worthless but let me know…
Mr.Tegin,
1.I will not advertise brokers I prefer to use as it will be direct advertising. I gave enough supporting information for any reader to make a right choice.
2. I didn’t say that MM are bad:)))I said that you will not be able to make good stable profit in MM for a long time without facing troubles like: longer order’s opening, more requotes e.t.c simply because MM make profits from the traders loses mostly , this is fact and there is nothing bad in this scheme.For most of newbies MM are fine, because they lose mostly, troubles begin when trader start to make good profts.
So ECN brokers is the only solution to use for those who make stable profits. MM brokers good for newbise due to low initial deposits, micro lots…untill…
Hi
Have been on some other fourms lately and be very careful of FXOPEN, I have seen that they have taken money from alot of clients… Really not good… I use United World Capital and up till now have had no major complaints… Have a look at their website and they have bonuses too which always helps to get up and running
Thanks for the tip. I’ll take a look at the site. I’m not so well versed in MT4, but understand the benefits of ECN. Will let you know what I come up with - though I wouldn’t mind testing out another site or 2.
[B]Market Makers (MMs)[/B]
These brokers are retail brokers. Most available and generally have lower minimum deposits compared to ECNs. These brokers take the OTHER side of your position. Remember when you’re on the LONG side, someone is on the short side; in an MMs case, this means they are on the opposite side. They make money off the spreads. They also make money when you lose. Every trade has a winner and loser, if you win, they lose. If you lose, they win. If that broker’s ultimate goal is to make money, they rely on traders losing. This is whether myths/urban legends/ whatever you want to call it have surfaced about stop hunting (where MMs falsify market data to hit people’s stops). In the end, when you lose, the MMs business wins, making it money. You see where it’s going… NOW; not all MMs are like this, you have to watch out for the ones that are known to be trusted. Bigger names and around a long time.
[B]ECNs[/B]
ECNs have a different approach. They charge commission and lower spreads. Each trade you place will have a specified commission similar to trading stocks. The philosophy is different though, as they want you to KEEP PLACING TRADES with them. Thus they want you to be on the winning side more, to place more trades, to increase your balance, and thus send more commissions their way. Downside to the ECNs- most requre larger minimum deposits.
I’m currently looking for an ECN broker as my first to go live on, MB Trading is one to look at also. Lower minimum deposit; they NFA regulated which is good too. Still doing research before I take the plunge either way though.
GTR Power, again, the major idea is that with MM trader looses… I know, how both MM and ECN work and I’d have to say in case you really know it, despite all the possible advantages of ECN, MM can at leat hint you that you can win huge amounts…