A broker or brokerage firm is one of the essential elements that support our activity in forex trading. We are talking about here is a regulated forex broker properly trusted with regulators and has been recognized the world as the CFTC and NFA (United States), the FSA UK (United Kingdom), FSA (the European Union), (Australia) ASIC. Surely you don't want to risk your funds at a broker that is not transparent or even fraudulent (scam), unless maybe you want to just try a quality broker.
If you feel in doubt against a broker you'll choose, you can inquire directly to the regulator above, they are very open and transparent. It is strongly recommended that you do not easily caught up with the lure of forex brokers who are less sensible, as brokers and traders we actually have the same interests that is gaining profit.
When we are trading, the prices that we get from our selection of brokers might be different with other brokers, although not significantly. This is because every broker has its own likuiditor that vary in price. Likuiditor could be another larger broker or other financial institution. Likewise, the policy determines the magnitude of the spread applied to each different forex brokers, there's that provide fixed spreads (fixed spreads), although when there are important fundamental news spreadnya can be widened, some use spreads vary (variable spreads) correspond to the actual state of the market. There are basically 2 types of broker, that broker type of ECN (Electronic Communication Network) and brokers who make their own market or market maker.
Market maker brokers
Market maker brokers determine prices based on what is considered best for them. This occurs because each of us open position buy, broker market maker must sell, and vice versa if we open sell positions they will buy. Therefore brokerage market makers dare to give fixed spreads (fixed spread) because they alone determine the bid and ask prices that you see on the trading platform, though it does not vary much with the actual market circumstances. Dependent of his strategy, there's the hedge our position with other traders, some are directly trade against our position. So there is a conflict of interest between us with the broker, though not all market maker brokers cheat their origin has been regulated properly by a credible regulator as mentioned above.
Pros: fairly complete trading facilities (news feeds, free EA etc.), and the movement of the price relatively more quiet, not too volatile as often happens on broker ECN type.
Disadvantages:
- Because there is a conflict of interest between us with the broker, then there is a potential party brokers would be cheating if the broker is not regulated properly.
- The price we get less nice than broker ECN type.
- When there are important fundamental news release can happen slippage (springboard price) which resulted in our quick stop loss hit (the worst), especially when we use pending orders (stop and limit orders).
- A lot of that limit and some are banning the use of the scalping strategy.
- There are a few that caught cheating (scam) using a particular strategy to make our stop loss hit quick, or commonly known as a broker with stop loss hunter.
Broker ECN types
With trading broker ECN types we can interact directly with the market without any intervention from them. ECN type brokers bring together sellers and buyers directly and in real time. They have benefited from the magnitude of the spread that has been on the mark-up as well as the cost per transaction that we have done (comission). This type of broker to use spreads vary (variable spreads) in accordance with the real market conditions. For currency pairs are very liquid spreadnya could be smaller than the brokerage market makers.
Pros:
- Price bid/ask offer better than the brokerage market makers
- For the pending order when there are important fundamental news release slippage does not occur (springboard price).
- Does not prohibit or limit the use of the scalping strategy.
- Suitable for scalper because of volatile cost more movement than brokers scale model maker.
Disadvantages: minimal trading facilities.
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