• The trading platform usually comes with free charting software and news feeds. (For related reading, see Demo Before You Dive In.)
  • Some of them have more user-friendly trading platforms.
  • Currency price movements can be less volatile compared to currency prices quoted on ECNs, although this can be a disadvantage to scalpers.
  • Because they may trade against you, market makers can present a clear conflict of interest in order execution.
  • They may display worse bid/ask prices than what you could get from another market maker or ECN.
  • It is possible for market makers to manipulate currency prices to run their customers' stops or not let customers' trades reach profit objectives. Market makers may also move their currency quotes 10-15 pips away from other market rates.
  • A huge amount of slippage can occur when news is released. Market makers' quote display and order placing systems may also "freeze" during times of high market volatility.
  • Many market makers frown on scalping practices and have a tendency to put scalpers on "manual execution", which means their orders may not get filled at the prices they want.
How Electronic Communication Networks or ECNs WorkECNs pass on prices from multiple market participants, such as banks and market makers, as well as other traders connected to the ECN, and display the best bid/ask quotes on their trading platforms based on these prices. ECN-type brokers also serve as counterparties to forex transactions, but they operate on a settlement rather than pricing basis. Unlike fixed spreads, which are offered by some market makers, spreads of currency pairs vary on ECNs depending on the pair's trading activities. During very active trading periods, you can sometimes get no ECN spread at all, particularly in very liquid currency pairs such as the majors (EUR/USD, USD/JPY, GBP/USD and USD/CHF) and some currency crosses.

Electronic networks make money by charging customers a fixed commission for each transaction. Authentic ECNs do not play any role in making or setting prices; therefore, the risks of price manipulation are reduced for retail traders. (For more insight, see Direct Access Trading Systems and the Electronic Trading tutorial.)

Just like with market makers, there are also two main types of ECNs: retail and institutional. Institutional ECNs relay the best bid/ask from many institutional market makers such as banks, to other banks and institutions such as hedge funds or large corporations. Retail ECNs, on the other hand, offer quotes from a few banks and other traders on the ECN to the retail trader.

  • You can usually get better bid/ask prices because they are derived from several sources.
  • It is possible to trade on prices that have very little or no spread at certain times.
  • Genuine ECN brokers will not trade against you as they will pass on your orders to a bank or another customer on the opposite side of the transaction.
  • Prices may be more volatile, which will be better for scalping purposes.
  • Since you are able to offer a price between the bid and ask, you can take on the role as a market maker to other traders on the ECN.

  • Many of them do not offer integrated charting and news feeds.
  • Their trading platforms tend to be less user-friendly.
  • Because of variable spreads between the bid and the ask prices, it may be more difficult to calculate stop-loss and breakeven points in pips in advance.
  • Traders have to pay commissions for each transaction.
Which Type of Broker Should I Use?The type of broker that you use can significantly impact your trading performance. If a broker does not execute your trades in a timely fashion at the price you want, what could have been a good trading opportunity can quickly turn into an unexpected loss; therefore, it is important that you carefully weigh the pros and cons of each broker before deciding which one to trade through.