ECN vs Market Maker Forex Brokers

ECN vs  Market Maker Forex BrokersWe all know Forex Brokers manipulate prices and spreads. How do they do it? Why not someone stops them?

It may come to you as a surprise that Forex market is not as transparent as its counterparts like Stocks and Options market. Unlike those markets, it is not centralized or regulated in the similar fashion, hence exchange rate of any given currency can vary between brokers. The main liquidity providers are the big banks and hedge funds, they are known as InterBank Market. With this in mind lets look at how ECN and Market Maker brokers fits into the picture.

Market Maker Brokers

As the name suggest they “make” the price, as in change Bid and Ask value. Say for example they receive 1 pip spread from InterBank Market on EURUSD, but instead for us they display 3 pips spread (spread is the difference between Bid and Ask). Brokers can vary this from time to time and sometimes even show tighter spreads on Demo accounts but when you open live account it is a totally different story.

Every time you open and close a trade you lose the spread. This adds up to a significant value if you trade frequently. Not only this but market maker brokers are notorious for creating spikes, they do it in order to take out customer’s stops. Some market maker brokers also freeze their platform during news announcements or increase spreads by 20-30 pips which is quite common. Since Forex is not tightly regulated as other markets there is not much NFA or similar organizations can do.

The only advantage of using a market maker broker is that they require less funds to open account and usually offer platforms that are easy to use. They also offer higher leverage, benefit s of which are debatable. Read Does higher Leverage in Forex Trading help?

ECN Brokers

ECN Brokers simply provides the best possible price i.e. the best spread based on current market participants. The price on their platform comes straight from the InterBank market and there is no manipulation of the spreads. Spreads as you know are the bread and butter of market maker brokers. Since there is no mark-up on spreads by ECN brokers, the only way they can money is to charge commissions / fees. This fees is not different from what you pay when buying or selling stocks. From my personal experience the commission are negotiable and you can bid one broker against another to quote you the lowest commission rate. Also paying commission works out economical than higher spreads on market maker platform. I’ve traded on several occasions when there was no spread at all (BID=ASK)

When it come disadvantages, the most common one is the lack of user friendly platform. Most ECN Broker’s platforms are hard to navigate and it takes time to get used to them. However once you are familiar you can take advantage of advance order types which are not typically available on other platforms.

ECN vs Market Maker Forex Brokers Summary:

To me it is quite clear, ECN brokers win hands down. There is not better way of trading. Having said that, they may not be suitable for everyone, for those specially who choose to start with less amount of funds and prefer higher leverage.

Chris Farnworth is an independent Forex and Commodity trader with many years’ experience under his belt. He travels and works from around the world trading and writing content for various websites and blogs. In his spare time he enjoys scuba diving and surfing.

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31 Responses to “ECN vs Market Maker Forex Brokers”

  1. roohi adnan 2 March 2010 at 8:51 pm #

    based on your experience,could u suggest an ECN brokers which is trustworthy & reliable to trade fx.your suggestion will be very much appreciated.

  2. amdegia 2 March 2010 at 8:54 pm #

    Is fxDD one of the ECN broker, do you know?

    • Diet Pipsi 2 March 2010 at 9:58 am #

      No, FXDD is not an ECN. They may offer ECN-like pricing, with a commission involved, many MMs will offer it if you ask. But even then, they are not a true ECN.

      • bono 18 November 2012 at 12:17 pm #

        How to distinguish true ECN broker from MM broker (dealing desk?) who offers ECN as a pricing system?

  3. Diet Pipsi 2 March 2010 at 9:03 pm #

    You "advance order types" that can be taken advantage of. I assume you mean something like the following:

    Earlier today we were discussing how with different brokers you may miss the target by a pip or two, just because that broker didn't quite reach the target.

    On MBTrading's old platform, I have entered trades where I put in the target as a Limit Order, and when we get within several pips of the target, I have had trades close and I get filled at the price I asked for, even when the chart or the FX board never showed that price. Limit orders with MBT (and I assume other ECNs) get actually placed out on the open market, and are surprisingly often filled momets before the price on any chart shows your price.

    Just food for thought.

  4. Steven 3 March 2010 at 1:23 am #

    Is InterbankFX an ECN Broker or an market maker broker?

    • Diet Pipsi 3 March 2010 at 3:07 am #

      IBFX is a MM broker.

  5. Nick 3 March 2010 at 12:56 pm #

    PFGBEST is ECN broker. More than 15 banks, and very customer oriented.
    http://www.pfgbestdirect.net

    • Diet Pipsi 3 March 2010 at 2:02 pm #

      I don't think so. Just as any MM broker, they may offer a different environment with ECN-like pricing, and with a commission involved, but that does not make them a true ECN. With that said, I could be wrong about this broker, but I highly doubt that they are a true ECN.

  6. ToeCutter 3 March 2010 at 3:36 am #

    I'm with Dukascopy – Interbank ECN. The sign up process in onerous (yet, strangely reassuring), but once you have an account, it's all good.

    Their platform is straight forward and stable. They're even working on a MT4 platform, but in the meantime they have a bridge between users of MT4 and their proprietary platforms.

  7. choud2403 3 March 2010 at 5:40 am #

    I am using FX Solution. They use the fixed rate not variable rate like other broker. So, at the news event price stays fixed not move 20 to 30 pips like other brokers. I think they are ECN. It shows on their website. EUR/USD spread 3 pips but GBP/USD 5 pips. It's ok as I am not getting big spread at the news events.

    • Diet Pipsi 3 March 2010 at 7:45 am #

      Anything with a fixed rate is a MM broker. ECN brokers by their very nature mean that the spreads are whatever the market really is, and not fixed. If the broker is fixing their spread, that means they are manipulating whatever the real spread is. That doesn't mean they will manipulate it against you, it just means that they CAN.

      • choud2403 3 March 2010 at 1:15 pm #

        Thanks Diet Pepsi for clearing that. As I like fixed rate so I am happy with them at this point.

  8. subhash 3 March 2010 at 8:49 am #

    I use FXCM Mini account and ACM for my standard account. ACM is better because you normally get the price you click . On first look FXCM have good spreads but over the last 6 months I have noticed between 0.5 and 1.5 slippage against me.

  9. ernest8fingers 3 March 2010 at 9:43 pm #

    I also have an FXCM Micro account (DealingDesk on TradeStation2 platform). I only use Market Orders w/zero deviation(this means I either get the price I see exactly or I get a requote) I get few requotes. No slippage at all. I like this type of account.Everything is online and thru email(no live support) Spreads on majors are very reasonable(Eur/Usd 1 to 1.5 pips on average). Withdrawals in under a week usually and by check.

    • jayakumar 3 March 2010 at 11:36 am #

      Can u please give web site of your broker that help me log.

    • Shahid 29 April 2012 at 11:45 pm #

      I dont understand why you are pleading FXCM Micro account. In my opinion they are the worst. They charge so much slippage charges on the news outcome plus the spread exceeds to high that on a spike of 50 pips you even lose the trade because of the slippage charges and high spreads. I will never ever recommend any one to use their plateform. Plus they claim that their plateform allow no dealing desk. That is wrong to say. they hit your stop losses by a bull and the bear traps which in other word a fictitous spike to eat up your stop order.

  10. Steven 3 March 2010 at 1:35 pm #

    Can you recommend an ECN broker that lets you trade with mini or micro accounts and/or fractional lots. I am starting with limited funds and this could give me more control over the number of lots that I trade.

    • Diet Pipsi 3 March 2010 at 5:06 pm #

      MBTrading is (or has always purported to be) a true ECN. They spent over a year developing an alternate version of the MetaTrader platform that would work with their direct-to-bank fills. If they actually do still have some ability to manipulate the price or the spread, I have not seen it.

      I am not anyone important, so just because I haven't seen it doesn't mean it doesn't exist. But I have traded with them for two years, and have watched them closely. I believe they are the true ECN they claim to be.

      All accounts with MBT are mini accounts, even if you have millions of dollars in it. So "1 lot" on their platform actually IS a minilot ($10,000 worth of currency, or roughly $1 per pip of trade value). And they allow trading down to .1 of their lot size, which is a microlot ($1,000 worth of currency, or about 10 cents per pip of trade value).

      Unless they've changed in the last few months, you can open an account with them for $500 opening balance, which is well within the reach of most traders.

      You can open your account with them as a MetaTrader account or a Navigator account, where Navigator is their own proprietary platform. The Navigator platform is actually very well suited to FirePips method, because it has several order types not found in MetaTrader. For example, you can enter a "sell-limit" order as your close order for a buy trade and vice-versa for a sell trade, and limit orders are placed out in the real market in advance. This means that as price gets near to your target, the first liquidity that is available at that price for your order size gets filled instantly, while everyone else in the world is still waiting several instants for their broker platform to see the price, execute the close order and wait to be filled. I have experienced times where I get filled at my close price several moments before that price ever even shows on the board.

      Another thing the Navigator has which is quite nifty, is that you can tell it to set a short trail of X pips in place when you get within Y pips of your target. So for example, if you are in a Buy, and your target is 1.3850, you can tell it that if it gets to say 1.3844, then attach a trail of, say 8 pips. It will then put in your stop order for 1.3836, protecting most of your profit, so that if the target does not quite hit, you still get most of the profit you targeted. And sometimes, price continues on past your target, and I have gotten as many as 20 and 30 extra pips that way on occasion. Of course I've also gotten 10 less than I wanted sometimes too, only to see it move ahead past the target shortly after. But it's still a nifty little feature.

      Beware, you can put BOTH types of orders in if you want to, and whichever one closes your trade, you have to remember to go cancel the other type of close order, because it will not do this for you. And then when the other close order hits, it will put you into a trade the other way that you didn't mean to take. It is a rather archaic platform, IMO and terribly unforgiving of any mistakes you make in placing your orders. But it does offer some neat things.

      Unless they have changed it recently, you cannot trade the same account using MetaTrader and their Navigator. I've read where they say they are going to do that "soon" but until or unless, you have to choose which platform you want when signing up. I DEFINITELY suggest if you go with their Navigator platform, you use a demo account for a week or two to get used to how it works before you use it with live money.

      You can always open a MetaTrader account if you got the Navigator account and found you don't like it, and then move the money from one account to the other account in one day.

      Or choose their MetaTrader platform, and just do what you are accustomed to already!

      More info than you asked for, but it answers your question about an ECN that allows mini and micro lot trading.

      Hopefully helpful – -

  11. Tom Trader 4 March 2010 at 2:27 am #

    Agreed FXDD is not a true ECN. Velocity Trade and Advanced Markets are the only true STP platforms that I know. Not ECN but all trades hit a bank without intervention, execution is far better. Though you have to pay commissions which can throw off P/L when scalping.

  12. Tom Trader 3 March 2010 at 6:10 pm #

    just to be clear, fxcm micro account is 100% dealing desk, they even admit that not of the positions are hedged, they just assume the micro trader will lose more than profit.
    But they dont step in between the trade, so in a way the fills are accurate.
    FXDD does run a desk, though they wont admit it.

  13. harun 4 March 2010 at 4:37 am #

    What about IamFx broker? Are they one of the real ECN?

  14. Eric 5 March 2010 at 3:38 am #

    Try WSD Direct they are an ECN broker. Been with them for a short while – happy so far.
    Cheers.

  15. Acic 11 April 2010 at 2:31 am #

    So …
    Whar is your Broker theses days ?

  16. cena 9 December 2010 at 4:28 pm #

    hw is Dukascopy platform? any one help me,

  17. LT181 5 November 2012 at 9:57 am #

    Can someone please post us a list of true ECN Brokers?

    • FirePips 5 November 2012 at 10:11 am #

      Try these:
      1. MB Trading
      2. Dukascopy
      3. FXCM Active Trader

  18. Tammy 11 January 2013 at 3:05 pm #

    IC Markets is the only real true ECN broker. They also have the best spreads. EURO dollar spreads are 0.0 pips. ASIA regulated also.

  19. maria 16 January 2013 at 11:31 pm #

    FXCM is the wrst out there to tarde against you they have a dealing desk they hunt stops all the time keep away

    • @JasonForex 17 January 2013 at 2:02 am #

      Hello Maria,

      FXCM's platform automatically displays the best bid/ask price being streamed from 10+ liquidity providers plus a pip mark-up that acts like a commission. FXCM has no control over the price movement since pricing is set by price competition from the liquidity providers. FXCM also has a dealing desk option; however, the dealing desk price feed is not arbitrarily created. The dealing desk feed derives its prices from the NDD price feed but with the spread marked down by 1 pip on 12 of the most popularly traded currency pairs with FXCM.

      Having the NDD forex feed eliminates the potential for manipulation and stop-hunting that you may experience when your broker can arbitrarily control pricing.

      Jason Rogers
      FXCM


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