Investment is done with the hope of earning profit on it. Regardless of the type of investment the investor wants to make sure to gauge the conditions in the market thoroughly enough to make well-informed decisions to make maximum profits on his investment. However, when it comes to forex market you don’t always have direct access to the market. You have to deal with the brokers who are then associated with the players in the market. This makes it obvious that the broker is going to keep a cut out of every transaction to make his share of the money.
Conventional brokers are the middle parties between you (the trader) and the forex market. When they offer you a pair of currency they make sure to keep the spread large enough to make maximum profit out of the transaction. The price you pay to buy a particular currency will always be higher than the amount you obtain for the same currency for selling it at the same exact moment. This is because the retail broker is earning from this different in bid and ask price. Even though this price difference doesn’t have to be big, it still varies from broker to broker.
If you want to play safe and reduce your costs of trading you are highly recommended to find the ECNs. These are the brokers who are connected to the Electronic Communications Networks. On these networks these brokers are not paid for the difference in the buying and selling price of the currency. They are paid for every transaction they conduct. In short, they are the direct parties under the companies that are holding shares in a particular commodity or are offering these currency pairs. They keep the market liquid and get paid on every transaction they make for the firm.
What this means is that ECN brokers are not much concerned about how much they will earn from the difference in the ask and bid price. They will focus more on making more transactions and at times they will offer absolutely no spread. This also means that ECN brokers are paid their commission whether you win or lose, so they are not much concerned about your transactions’ final status and don’t go for playing against you. The conventional brokers i.e. the retail brokers, often face the charges of playing against traders to make their profits.
ECN brokers have always been considered the more reliable form of brokers but that does not mean all the retail brokers will play against you and only for their interests. Some online retail brokers are providing some great services and with the new platforms coming on the scene traders are getting more control of their trades. With mirror trading your investments are being made securer than before. Many of the platforms will now let you see the status of your trades in real time so you are always aware of what’s happening to your money. You can get the same services from online ECN brokers too.