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If you have already assembled your forex trading system by now, you are not in the clear yet. Now comes the phase where you get to select the type of forex broker firm that would fit in smoothly with your plan.
A forex broker practically is the one that will execute the transactions for you, and acts up as your partner in setting up your orders.
There are two major types of forex brokerage companies. Realizing their differences is essential on your path to dominating the market. Not apprehending the advantages of each can cost you 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 give them power in handling your money.
A MM company plays the role of an exclusive liquidity provider, ensuring services that is otherwise not found on any other brokerage set-ups. In plain 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 concluded 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 variance 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 transactions 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, put your order in a bid and lists all the asking prices for it. The asking prices come from many market players, 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 may also take the role of an MM and mediate between transactions, 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.
Choosing which one to focus on depends entirely on the type of method you have, whether you want 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. Understanding how 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 entirely confident 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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