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If you have already put together your forex trading system by now, you are not finished yet. Now comes the phase where you get to find the type of brokerage firm that will fit in smoothly with your method.
A forex broker practically is the one that will execute the trades for you, and acts up as your partner in setting up your orders.
There are two major types of forex brokerage firms. Knowing their differences is important on your path to dominating the market. Not apprehending the advantages of each can set you back a lot of time and/or money.
MM: Market Makers
What is important to understand about Market Makers are the fact that they are the ones who determine the asking price and the bid price. As your trading partner in buying or selling, you grant them authority in handling your money.
A MM institution plays the role of an exclusive liquidity provider, ensuring services that is otherwise not found on any other brokerage set-ups. In simple terms, they sell for you as well as buy for you. Think of them as a place where they do all the work for you.
Understanding how MM makes a profit is simple. When you eventually decided to buy, you buy from them. They in turn will go to other brokers and buy at slightly better rates to sell to you. The difference in rates is their profit. Think of it as the compensation for the work they have done you would have otherwise done yourself.
The advantages of MM:
1. They have fixed spreads, freeing you from the disadvantage of the fluctuations in the market.
2. Since they work for you as a partner, your orders are assured.
3. They are usually user-friendly, easy to access and understand. Software and platforms are easy to use.
ECN: Electronic Communication Networks
Electronic Communication Networks on the other hand, place your order in a bid and lists all the asking prices for it. The asking prices come from many market participants, if their sell order matches your order.
If there is no match, then your order will not push through. ECNs are not required to fill your orders; rather, it depends on you if you will agree on the other participants' bid/price.
The advantages of ECN:
1. Prices are more dynamic, so scalping is ideal here.
2. You can also take the role of an MM and mediate between trades, making a profit for yourself in the price variances.
3. Because there are many sources, bid/ask prices are more favourable and more diverse than MM prices.
Selecting which one to put your focus on depends entirely on the type of strategy you have, whether you plan to trade conservatively or aggressively. Different brokers fulfill different demands, and the services they give set them apart. These two are just the major kinds, and now you can seek out that broker that leans on the type you consider will best work out for you.
The advantages of the two help a lot of diverse-thinking currency traders apply their strategies. Most of them have an account on both in order to maximize the potentials they have. Learning to play in both fields is a step closer towards a successful career in currency trading.
Whichever kind of broker you use, it is your own responsibility to decide what and when to buy or sell. If you are not absolutely sure about your strategy, the best support you can get is a reliable forex signal provider. Such forex signals are available online. But always make your due diligence, as only reliable forex signals would make you money. You do not want to waste time and money on experimenting with losers, so always check the past performance of the service provider.
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