Which Forex Broker Type is The Best?

Over the last four years I have traded foreign exchange with a variety of companies both in Australia and overseas, throughout this time I have experienced the very best and worst of the forex markets as well as the best and worst of forex brokers in general. I've dealt with market makers, fixed spread brokers and on electronic communication networks (ECN's). Repeatedly I get asked which kind of forex provider model is the best. To answer this query and share my experiences I made a decision to write this article on each type of forex broker model.

Fixed Spread Brokers
There are quite a variety of fixed spread forex providers in Australia, a few have spreads as little as two pips on the EUR/USD. Trading on a fixed spread can have its advantages as well as disadvantages. Certainly one of the principle advantages of trading on a fixed spread is that investors are guaranteed constant spreads throughout times of market instability for example interest rate announcements. Volatile times are often the periods during which spreads can enlarge allot without warning repeatedly catching newbie traders off guard.

Despite having the benefit of a fixed spread throughout market volatility, fixed spread providers will regularly quote wider spreads through quiet periods, often their spreads are a great deal wider than those obtainable by market markers or ECN forex brokers.

Trading on a fixed spread can often be good for beginner investors who are not yet familiar with the wild price volatility of the forex market.

Market Makers
There are a small number of market markers that have given the rest a terrible name by trading in opposition to their clients and taking advantage of client losses, however this isn't normal practice for all market makers only a select few. Usually market makers are able to offer fairly tight spreads across all main foreign exchange pairs, however you should understand that this not always the case if you're looking to trade considerable parcels or buy and sell around announcements such as interest rates or non-farm payroll.

A number of market makers are known to widen their spreads by as much as fifty points during times of market instability, they often do this to guard themselves from scalpers looking to make the most of their tight spreads.

When selecting a forex broker who is a market maker you will need to ensure that you do your homework and make certain that they are not one of the few that are actually trading against you and profiting from your losses.

ECN Providers
By far the most transparent forex broker model is an electronic communications network or ECN. An ECN broker simply aggregates the very best price feeds from a few investment banks and always shows the best bid or offer. Nearly all ECN providers will charge a commission rather than applying a spread to the natural market price this ensures that you are trading on the real market price as set by the world's largest investment banks.

There are numerous advantages of trading with an ECN provider the most noticeable being the spreads available; frequently there is no spread or an inverted spread, these are prices not attainable from market markers or fixed spread providers. Throughout volatile times an ECN forex broker will always show the very best price available, as ECN brokers rely on a lot of investment banks who're actively buying and selling over these periods you'll continually get the best price and not be subject to tremendously wide spreads which you'd otherwise get with a market maker.

Naturally it is up to you to decide on kind of forex provider that fits you best as each have their very own unique advantages. You should always make your choice based on the buying and selling strategy that you employ plus your degree of experience of the market. My personal preference is to trade with an ECN forex broker like IC Markets as I can be certain to receive the best pricing {available|obtainable|accessible.

Article Source: http://casinoarticles.us

John Benson is an veteran forex trader having dealt with all the main forex brokers in Australia. John has published a number of publications and articles on forex trading, it is recommended that you read some of John's publications to make certain that you make the correct choice when choosing a forex broker.

Please Rate this Article

5 out of 54 out of 53 out of 52 out of 51 out of 5 

Not yet Rated