As a trader, you should know the defferences between market maker and ECN markets. The world big banks are main player in market, they made an exclusive market called interbank market. In interbank market almost whole trades transactions happened.
Ordinary retail traders cannot enter and access this interbank market, it happened because they do not have credit relationships with the big players, but that does not mean they cannot prohibit from trading forex.
Retail traders can enter this interbank market through two types of brokers, namely market maker and ECN markets. For your information, this is the difference between these two markets. Here is the explanation!
Market Makers
Market maker and ECN markets are a different type of broker. Market makers set their own ask and prices in a system. They appear so open in their trading platform which is the platform can be accessed in any time by banks or retail traders. Market makers has a “counterparty” role, that means every time you make a buy option, then they have to sell to you and vice versa.
They set the exchange rate based on their best rate consideration. The way they make a profit is through spreads that are charged to traders. As a counterparty, they also do hedge to cover orders and give them to others. In some cases, market makers can also make a decision whether to hold an order or against your order.
Market maker also has many types of customers. This can consist of brokerage companies, traders, governments, banks, financial institutions. Because these market participants are also included as participants who can influence the market or are called market makers.
ECN (Electric Communication Network)
The next difference between market maker and ECN markets are Electric Communication Network or ECN is an electronic system who designed to give a room for forex traders to get into the liquidity market directly. ECN and Broker ECN have different meaning. Broker ECN is a forex broker that uses ECN to provide direct access to the currency market to its clients.
ECN has two main types. ECN Retail has function by propose quotes from some banks and the traders to ECN retail traders. While, ECN Institutional provides the prime bid and ask from some institutional market makers like banks, which transaction to other banks or institutions like mutual funds and some large companies.
ECN brokers do not use Dealing Desk. This Dealing Desk is an intermediary that functions as a mediator between traders and the market. Dealing Desk is usually making your order rejected when the market is very busy.
There are some reasons why you have to choose ECN broker. First, you can commonly get a better Bid Ask and price, why? Because you get it from lot of resource and it's variative. Second, the original ECN broker will not prevent your trading process, because they will give a good assist for you by asking your demand to the bank or another customer.
But ECN broker has two minus points. First, ECN will be hard for newbie traders, basically ECN broker is all about get into through the market which is you must have experience and good decision on making some strategy. Second, the high price. ECN broker can be stable but it’s a high-level price, you must have lot of numbers to making your way in ECN Broker.
There are some differences between ECN and Market makers that you can determine in your Forex trading. Those two types of brokers have some different, but if you want to choose what kind of broker that you want to try, you should try DIDIMAX’s forex broker.
DIDIMAX is one of the best now and we have so many mentors that can guide you to become professional on Forex Trading. You can also learn more about market maker and ECN markets with us.
