Broker-dealers are categorized either as market-makers or forex electronic communication networks (ECNs).

What is the basic distinction?

Market-makers or simply dealers are always the counterparty to forex player trades. Meanwhile, ECNs require an actual counter order for execution.

With the vaunted high liquidity of the forex market, counter orders do not pose a problem as long as the market is not too fast or too slow, or a trader places a huge order.

 Market Makers

If you will opt for a market maker, you should be wary of the implications of their counterparty function. Experts and experienced traders believe that some market makers are good, other even very good, but some are awful.

Traders should also keep in mind that it is the market maker who holds all the cards to their game. These so-called cards include the following:

• Data stream;
• Dealing desk;
• Liquidity control (for those with non-dealing desk);
• Trading platform; and
• Trading tools

• Acceptance and cancellation of trade;
• Dealer intervention;
• Pip spreads;
• Re-quoting; and
• Trading rules.

These cards are supposedly aimed at maintaining an orderly forex market. However, traders are not taking these too kindly and authorities have focused their efforts on minimizing but not totally eliminating the above “cards” which market makers use much to their advantage than to keep a tidy market.

 ECNs

ECNs do not play many of the roles of market makers. This is because they do not need to as they have practically no books to balance, so to speak.

Additionally, choosing to enter the stock market through the ECN necessitates that the trader acquires more accurate and delicate trading touch. You need to do your homework.

You can not enter the forex market armed only with physical logistics; you got to have a game plan and you have to master your trading skill.

There are also some issued with ECNs. In either fast or slow markets, liquidity suffers because they do not have tools for an orderly market at their disposal.

However, in a balanced market, ECNs may be a better option. This is on the presumption that you have acquired the necessary skills and made considerable headway in improving your strategy.

Experts have predicted that market makers will lose ground to ECN and this is now happening.

They did so without consulting with the oracle at Delphi, but merely by looking at the signs. Market makers manipulate the books to “maintain” order as and when they please.

Maintaining this order is, however, a situation where they are in a better position to make profit. Once traders sense this, they will opt for ECN, which do not have books to maintain in the first place.

By and large, there is no perfect broker, whether a market maker or ECN. There will always be good ones, better ones, or ugly ones.

Protect your trade from the unscrupulous ones by taking advantage of the depth of market (DOM) information provided by forex trading platforms.

Use DOM to guide your strategies and your actions. These will serve as valuable nuggets of wisdom for your trade.