Forex ECN Brokers Like IC Markets Are The Number One In OZ
Posted by Kennethh Anthoully in Uncategorized, tags: foreign exchange trading, forex, forex trading, general, investing, misc, Miscellaneous, news, UncategorizedYesterday I was in Brisbane presenting to a group of people from around Australia, a number of whom had been my former pupils a number of years ago and are now trading to make money in a full time capacity. Among the list of core topics that I covered in my tutorial was interbank liquidity and price formation, of course some of the more experienced forex traders in the audience understood what I was talking about but it was surprising to see that allot of traders still don’t understand exactly how currencies are priced. In order to fill in the gaps I have written this concise review.
As many people which have traded forex previously know, forex isn’t traded on an exchange but rather it’s traded on an over-the-counter (OTC) basis. Trading over-the-counter is a brand new concept for those who have traded shares in the past as no two forex brokers are going to be exactly alike, this really is very different to share brokers who will always quote you the same prices. One of the other key differences is that because there isn’t a central exchange when trading forex over-the-counter there is no physical exchange of any currency but instead you’re trading directly with the forex provider, this means that once you open a position with your forex broker you can only close it with that company unlike trading shares where you are able to sell your shares through any stockbroker.
Now you comprehend the notion that forex is conducted on an over-the-counter basis I’ll start by explaining the basics of price creation. Due to the OTC nature of forex a good number of transactions arise between investment banks and brokers as such they aren’t reported on a central exchange, it’s because of this that price formation in the world of forex is more difficult, however like equities and all markets there are several main players in the forex trading world that make prices move, they are the investment banks. Banks create prices in the course of their dealings with one another and in many cases they will quote prices through a system called EBS which enables one bank to see the prices shown by another bank. EBS however isn’t employed by all banks, what this means is that there are more investment banks dealing on prices shown outside of EBS, essentially their own market.
So what does this all mean to you? Well this means allot if you are trading using a market maker or STP company who will basically offer you a price they get from one bank or otherwise a price they get themselves that is simply based on the price they get from the bank that they deal with this means you may not always be receiving a fair price. The good news is that there’s now an alternative, there are several forex brokers that can show you an aggregated price feed from a number of banks as well as permit you to take part in the price formation, which means that it is possible to place your own bids and offers amongst those offered by a number of of the world’s largest banks. Forex brokers that offer this type of facility are known as ECN brokers.
ECN forex brokers are hard to come by and operate in a very dissimilar way to traditional forex brokers. Aside from the improved pricing obtainable by ECN fx brokers they will always charge commission, for most fx traders this is unheard of however to the shrewd forex trader this is generally a better way to trade. One of the main benefits to paying a commission over a spread is the fact that you actually know just how much you’re having to pay your broker, their fee is not concealed in the spread. Paying a commission also means greater opportunity, since you are paying the natural market price you’re able to get choice or even inverted spreads something you’d never observe using a traditional forex provider.
Before you all send me a million emails wanting to know which broker I deal with I might as well save some space in my gmail account and let you know right now. Before I let the cat out of the bag I do want to make it extremely clear that if you look hard enough it is possible to find a couple of ECN brokers, just ensure you do your homework prior to opening an actual trading account as there are quite a few brokers out there that claim to be ECN fx brokers but are really market markers. I have trialled virtually all of the ECN brokers and so-called ECN brokers and found that there is just one true ECN forex provider and this is also the broker that I personally trade with, it’s Australian based broker IC Markets. IC Markets have the best execution by a long shot and their pricing is one of the most accurate that I have ever seen. As the majority of you already know I don’t endorse any particular broker, I just trade using the forex provider that I believe has the most competitive product and most transparent pricing and that forex provider is IC Markets.
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