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These spreads are fixed, this
means Alpha can certainly charge less when the volume is
high, however they will not charge more. However, it is
good to remember; as Alpha are ECN brokers (prices are
reflected on bank rates)
the spread can become wider during times of very
low volume. This is not due to the broker manipulating the
price to make more money, it is due to the fact the market is
thin and the difference between the bid and ask is wider.
Brokers that can overcome this are Market Makers. Markets
Makers have the advantage of charging their own rates whenever
they like. You may find that in times of extreme volume (news
releases) their spreads widen to 10-15pip or more. Remember
forex robots work better on ECN brokers as they reflect the
real rate in the market, more
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ECN v's MARKET MAKERS
We 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 MARKER 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 customers 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.
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 make money is to
charge the quoted spread or 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. Ive traded
on several occasions when there was no spread at all
(BID=ASK)
ECN vs MARKET
MAKER
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. |
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Trade Forex with MT4 - FREE Demo Account
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