Hi everybody,
I’m still at the learning stage so I will really appreciate if someone could explain me the difference between an ecn forex broker and a bucket shop forex broker. Which is better to choose?
What will be the impact on my trade?
Enjoy trading!
To Monjefke :
The [U]real experts [/U]to give you a good answer to your question are [B]Tess, Rhodytrader, Topgun and Daydreamer.[/B]
But while you are waiting, I will give you what I have learnt and believe to be accurate.
An ECN deals directly with the market which consists of the banks and individuals. He charges a commission per trade like the sharemarket.
A “bucket shop” is a middleman broker. Instead of buying your groceries at the market you go to the shop. It may be more convenient but you pay higher prices.
Now a bucket shop sets his own prices. In dealing with them you do not see the real market.
He is a middleman and takes your order along with all the others, puts them in a “bucket” and mixes them all together.
You place your order at the bucket shop prices, not the market prices and you may well be disadvantaged by this.
You do not pay a commission but there is a big difference between the buy and sell (called the spread). Here the broker makes his money.
The spread on an ECN is much smaller because they charge a commission.
Bucket shops can do nasty things…such as :
giving you very bad prices.
turning the prices around to hit your stop loss.
shutting off your internet connection while you are about to make a profit.
Fill your order at a price very different from that which you mouse clicked - putting you at a big loss to start with.
phoning you and telling you that your last big profit take was invalid.
phoning you and telling you that because you continue to make profits you are no longer wanted as a customer.
phoning you and telling you that your profit withdrawal for that holiday you planned is invalid - some fancy excuse is given.
and much more.
On the other hand, I understand that an ECN is basically honest.
Now there is an excellent post regarding this matter…
FOREXTOWN…“How to tell if your broker is a bucket” by Forexcranium
A hyperlink to Utube is given here where you can watch an educational video.
You would do well to visit it.