It is no secret that in the modern world there is a wide selection of brokers offering various services. Each of them has their own pros and cons. However, there are some key moments that can tell you about the broker's reliability. Today, we are going to talk about two types of broker companies that have different approaches to dealing with their clients. They are two different forms of broker-to-client collaboration that you need to know well before jumping on promising slogans, bonuses, etc.
Market Makers and ECN Brokers are the two most known types of broker companies.
Let's discuss them in more detail.
Market Makers use their accounts to buy and store securities in order to sell them later. These companies act as direct bidders in the stock exchange and over-the-counter market. Usually, Market Makers can be both sellers and buyers. A broker operating as a Market Maker will be under some market requirements but in return may receive certain advantages (for example, rebates on exchange fees). These requirements can be something like trading time over 90%, fixed spread values, etc. This is the classic definition of a Market Maker that you can look up online. However, it does not fully reflect the principles of their operation. Obviously, the main purpose of Market Makers in Forex is providing liquidity. But don't forget the fact that they are in it for a profit. How do they make it? After a Market Maker provides everyone with liquidity, they will actively protect their own positions using market mechanisms, because they don't have any other way to hedge their risks. Now let's review the other type of broker.
ECN stands for Electronic Communication Network. This type of broker represents an over-the-counter trading system and serves as a match maker for different clients without being their counterparty (that is, without the broker acting as one of the parties in the trade). In other words, for traders, an ECN Broker is a platform where the order is matched with an internal counter-order or routed over to their partner (this partner serves as a liquidity provider for the broker).
As a rule, the largest banks of investment level in Europe and America serve as liquidity providers. Thus, the client of an ECN Broker is fully protected from the non-market risks, that is something you cannot say about the Market Makers. The key factor of success of an ECN broker lies in a large amount of high liquidity which allows them to conduct most transactions internally. There can be a situation when an ECN Broker may not be able to find a counter-order internally. In this case, the transaction is routed through the broker's partner.
It is obvious that the way an ECN Broker operates has some advantages over the Market Makers because you are not trading against the ECN Broker, and each transaction has its own counterparty either as another client or as a liquidity provider.
FXFINPRO CAPITAL is a regulated European ECN broker and does not trade against its clients like other types of brokers do. Due to the high internal liquidity and reliable partners, we can provide 24/7 access to transparent, fair, and successful trading in Forex.
We create the most favorable conditions for traders, and we are interested in our clients staying in the market as long as possible.
Contact us today and find more new unique opportunities in FXFINPRO CAPITAL.