Newbie Questions

[forexjoe9]

I am new to forex trading. Obviously everyone has their own ideas about what type of forex company to start with. My basic question is should I start with a market maker or an ECN type broker for my account? I will put up $1000 for a mini account, but then later I will upgrade to a full acount. Any opinions?

Featured Forex Brokers

	ECN ECN is an acronym for Electronic Communications Network. A Forex ECN broker does not have a dealing desk but instead provides a marketplace where multiple market makers, banks and traders can enter in competing bids and offers into the platform and have their trades filled by multiple liquidity providers in an anonymous trading environment. The trades are done in the name of your ECN broker, thereby providing you with complete anonymity. A trader might have their buy order filled by liquidity provider "A", and close the same order against liquidity provider "B", or have their trade matched internally by the bid or offer of another trader. The best bid and offer is displayed to the trader along with the market depth which is the combined volume available at each price. A greater number of marketplace participants providing pricing to the ECN broker leads to tighter spreads. ECN's typically charge a small fee for matching trades between their clients and liquidity providers.

	Market Maker A market maker provides pricing and liquidity for a particular currency pair and stands ready to buy or sell that currency at the quoted price. A market maker takes the opposite side of your trade and has the option of either holding that position or partially or fully offsetting it with other market participants, managing their aggregate exposure to their clients. If a market maker chooses to keep the trader's position without offsetting it in the market, the trader's profit is the market maker's loss and vice versa, leading to a possible conflict of interest between the trader and his market maker. A market maker earns their commission from the spread between the bid and offer price.

[Steve Pickering]

Originally Posted by forexjoe9

I am new to forex trading. Obviously everyone has their own ideas about what type of forex company to start with. My basic question is should I start with a market maker or an ECN type broker for my account? I will put up $1000 for a mini account, but then later I will upgrade to a full acount. Any opinions?

To be honest, I don't think it matters either way with a mini account, although I prefer ECNs. Being new to trading, I think you should pay more attention to how much you are going to risk. Many newbies make the mistake of allocating too much capital to each trade when starting with a mini account because they can "afford" to lose it. This will never get you anywhere. If you have enough capital to support a full account, open one, but apply strict money management rules until you have proved to yourself that you can trade profitably, consistently.

Steve Pickering

Risk Management Calculator

	ECN ECN is an acronym for Electronic Communications Network. A Forex ECN broker does not have a dealing desk but instead provides a marketplace where multiple market makers, banks and traders can enter in competing bids and offers into the platform and have their trades filled by multiple liquidity providers in an anonymous trading environment. The trades are done in the name of your ECN broker, thereby providing you with complete anonymity. A trader might have their buy order filled by liquidity provider "A", and close the same order against liquidity provider "B", or have their trade matched internally by the bid or offer of another trader. The best bid and offer is displayed to the trader along with the market depth which is the combined volume available at each price. A greater number of marketplace participants providing pricing to the ECN broker leads to tighter spreads. ECN's typically charge a small fee for matching trades between their clients and liquidity providers.

[DrForex]

Originally Posted by forexjoe9

I am new to forex trading. Obviously everyone has their own ideas about what type of forex company to start with. My basic question is should I start with a market maker or an ECN type broker for my account? I will put up $1000 for a mini account, but then later I will upgrade to a full acount. Any opinions?

I fully agree with Steve. The mindset that your counter party in the normal business processes can cause your succes or failure is flawed.

I will discuss the issue of brokers / market makers in one of my very next newsletters and will it hopefully expose some latter day "saints" for what they are: (but I'll will not give it away now).

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Featured Forex Brokers

	Market Maker A market maker provides pricing and liquidity for a particular currency pair and stands ready to buy or sell that currency at the quoted price. A market maker takes the opposite side of your trade and has the option of either holding that position or partially or fully offsetting it with other market participants, managing their aggregate exposure to their clients. If a market maker chooses to keep the trader's position without offsetting it in the market, the trader's profit is the market maker's loss and vice versa, leading to a possible conflict of interest between the trader and his market maker. A market maker earns their commission from the spread between the bid and offer price.