Understanding The Two Different Types of Forex Brokers | ForexGen

If you are trading the forex market on a retail or individual level, there is a very slim chance that

you will be able to participate in the interbank market.

Typically, the smallest trade that can be placed on the interbank market is USD $1,000,0000, so

really only high-net worth individuals could possibly have the trading capital to participate in this

segment of forex trading.

The smaller part of forex trading is called the retail or individual forex market, and anybody can

trade this market with as little as $500 due to the existence of retail forex brokers.

It is, however, important to understand the two different types of forex brokers that you will

encounter when you are navigating the slightly murky waters of forex so that you can grow your money

and not lose it.

The two different types of forex brokers are called ”market makers” and ”ECN brokers” (ECN stands for

electronic communications network). The most typical question that many traders ask initially is ”

Which one is better?” and it would probably be best to say that ECN brokers are better for the simple

reason that market makers have a vested interest in seeing you lose money trading (as you will see

below).

First, let’’s break down how each of these two different types of brokers are set up.

Let’’s begin by making sure you understand the reason that these brokers exist in the first place:

they exist to provide forex market access to people who have a willingness to trade but do not have

access to vast reserves of capital necessary to participate in the interbank market.

Simply put, the only role an ECN broker is to match buyers and sellers by putting orders through

their communications network. ECN brokers play no role in actually providing liquidity, all they do

is provide a medium where buyers and sellers can find each other, so they also play no role in

manipulating market prices in any way.

The goal of the forex market maker is to provide liquidity to potential traders, and the way that

they do this is to take the opposite position on every trade that you make. For example, if you want

to buy 1 lot of EUR/USD, some other party will need to place a sell of this same size in order for

the trade to go through.

This is what the market maker does, and they will be on the opposite side of every trade that you

make.

Also realize that forex trading in this manner is what we call a ”zero-sum” transaction, which simply

means that for every time that you make money, some other trader has to lose money, and vice versa.

So what does this mean for you if you choose a market maker as your foex broker? It means that every

time you have a profitable trade, you take money away from your broker, and your broker will make

money every time you have a losing trade.

Now your market maker will probably never admit it to you, but because they stand to profit every

time you lose on a trade, it is actually in their best interest to see you lose.

It is, however, still very possible to make money for yourself if your broker is a market maker,

though if you become highly profitable then they may come up with some BS excuses for why they cannot

give you your money. So if this ever happens, and your broker starts giving you fake excuses like ”We

cannot guarantee this fill on your trade because you entered the market at a volatile time, blah

blah,” it is time to find a new broker!