If the answer is Yes and No, then what’s the big deal? Simply put: Transparency. Alternatively, perhaps more aptly put the promise of transparency. Some investors may initially be attracted by the spreads, but the real reason that so many traders like ECN is the chance to see how a real market operates. There’s no lying or cheating; what you see is what you get. For a lot of us, that’s all we really want: A fair trade.
Bear in mind, though, your old retail trader wasn’t necessarily out to cheat or lie to you. It’s just that their business model doesn’t actually inspire confidence. Add to that the frequent and numerous media reports of brokers who practiced all sorts of the illegal doings, and you’ve got a market full of traders and investors just begging for transparency.
That’s not to say that all ECN brokers are honest and/or transparent. The fact is, until we’ve got a central clearing function that allows everyone access to the feeds, it’s not really transparent. It is, however, a move in the right direction.
Think carefully before opening an ECN account?
Are the old market maker brokers dinosaurs, then? Of course, not. Many brokers offer features which just make it prudent or advantageous for new or smaller account traders. For example, some guarantee that you’ll never have a negative balance, meaning you can’t lose more than you’ve got in your account. Actually, this is a very prudent, very wise safety feature. And ECN brokers just can’t offer that. That alone makes it the best choice for a lot of traders.
Consider the leverage aspect of it, too. Market maker brokers can offer leverage of sometimes 400 to 1, and if you need leverage like that it’s best to have protection against negative balances. Finally, a lot of traders like the advantage of the fixed spread, especially if they’re trading in the Asian Forex markets.
So, what will you choose ECN or Market Maker?