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Over the past four years I've traded forex with several companies both in Australia and overseas, during this time I have experienced the very best and worst of the forex markets as well as the best and worst of forex providers in general. I've dealt with market makers, fixed spread brokers and on electronic communication networks (ECN's). Regularly I get asked which type of forex broker model is the best. To answer this query and share my experiences I decided to write this short article on each type of forex broker model. Fixed Spread Providers There are quite a number 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 and also drawbacks. Certainly one of the primary advantages of trading on a fixed spread is that traders are guaranteed constant spreads during times of market volatility including interest rate announcements. Volatile times are often the periods throughout which spreads can widen dramatically all of sudden frequently catching beginner traders off guard. In spite of having the benefit of a set spread throughout market instability, fixed spread brokers will often quote wider spreads during quiet periods, frequently their spreads are a great deal wider than those offered by market markers or ECN foreign exchange brokers. Buying and selling on a set spread can often be good for amateur investors who are not yet familiar with the wild price fluctuations of the foreign exchange market. Market Makers There are a handful of market markers which have given the rest a terrible name by trading in opposition to their customers and profiting from client losses, however this isn't common practice for all market makers only a select few. Usually market makers are able to offer somewhat tight spreads across all of the major currency pairs, however it is important to know that this not always true if you are looking to trade large quantities or buy and sell around announcements such as interest rates or non-farm payroll. Several market makers are known to widen their spreads by as much as 50 points during times of market instability, they frequently do this to guard themselves from scalpers trying to take advantage of their tight spreads. When choosing a forex broker who is a market maker you will have to to ensure that you do your homework and make certain that they are not one of the the minority that are actually buying and selling against you and profiting from your losses. ECN Providers By far the most transparent foreign exchange broker model is an electronic communications network or ECN. An ECN broker simply aggregates the best price feeds from many different investment banks and always displays the best bid or offer. The majority of ECN brokers will charge a brokerage instead of applying a spread to the natural market price this ensures that you'll be trading on the genuine market price as set by the world's biggest investment banking institutions. There are various advantages of buying and selling with an ECN provider the most apparent being the spreads available; often there is no spread or an inverted spread, these are prices not achievable from market markers or fixed spread brokers. During volatile times an ECN forex broker will always show the very best price obtainable, as ECN brokers depend on quite a lot of investment banks who are actively buying and selling over these periods you'll at all times get the best price and never be subject to tremendously wide spreads which you would otherwise get with a market maker. Naturally it is up to you to decide on kind of forex broker that fits you best as each have their own distinctive advantages. You should make your choice based on the trading strategy that you employ and your level of experience of the market. My personal preference is always to buy and sell with an ECN forex broker like IC Markets as I can always be guaranteed to receive the best pricing {available|obtainable|accessible.
Article Source: http://www.onlinearticlessite.com
John Benson is an veteran forex trader having traded with all the major forex providers 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 right choice when choosing a forex broker.
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