ECN forex brokers

What is an ECN forex broker? You don’t need to exert your imagination greatly to understand that without a good broker even the greatest forex trading strategy in the world is doomed to failure. Unless the software you use is up-to-date, stable and reliable, unless the information passed to you by the broker is timely, and correct, no matter how smart or deep your analysis is, the ultimate outcome is likely to be failure. In addition, regardless of your success or failure in trading, you have to compensate the broker for his services. You will pay him the spread when you make a profit, and also when you suffer losses. Clearly the broker is one of the most important variables in the profitability equation.

Traders who are weary of the broker approach, and who would like to test their talents in a different kind of relationship can try forex ECNs. The ECN (electronic communication network) is a kind of intermediary that is not a market maker. Its role is limited to passing the quotes supplied by liquidity providers to clients and charging a commission for this service. Unlike the broker, an ECN does not inflate the spread to compensate for its services. You are passed the exact same spreads as they are received from banks, and are charged a commission which can be larger or smaller depending on the size of the position opened.

The difference of the ECN forex broker approach should be obvious to most traders. The most striking difference is in the spread. Most traders, for example, complain that the broker artificially inflates the bid-ask spread at time of news releases in order to prevent traders from making profits, or for other reasons. This is never the case with ECNs, because first of all, the ECN software is not programmed to intervene in traders actions, and also because the ECN has nothing to lose from profitable trades of clients. Brokers, as market makers, hedge against client positions in order to net out their exposure to the banks. Brokers are the counter parties that banks deal with. ECNs, however, only convey information between traders and banks, and as such, do not have to counter trade their clients.

The cost of trading in with an ECN is the commission alone. You get bank quotes in their raw form, you can arbitrage them when there are short them imbalances, and all that you need to do is paying the commission, which is a reasonable amount in most cases.

We should add that a seasoned trader will ultimately observe little difference in practice between an ECN or a market maker (the broker). A competent broker does not inflate the spread artificially to make client trades impossible. As such, the commission and the spread are comparable to each other in the best cases. Although some traders habitually prefer ECNs over brokers, and admittedly the ECN forex brokers do possess some strong points, neither approach is a guarantee for profitability. The greatest burden and responsibility is on the shoulders of the trader, as it is always the case.

Forex Mini Account

Forex mini accounts are fully operational forex trading accounts, just with smaller requirements for deposits and trading size. They are very suitable for new traders and beginners, who want to trade with real money, but do not want to risk a lot of money. Normal forex accounts with established brokers usually require significant deposits, $1000,$2000 or more in order to open an account. Naturally, this isn’t necessarily the best choice for beginners or traders with smaller budgets. This is where forex mini accounts come in handy.

A forex mini account only requires you to make a small deposit, usually in the range of $100 to $200. With this deposit, you get a forex account with all the features that you would find in a normal account.

Forex is traded in fixed amounts called ‘lots’. A lot is usually 100,000 units of the traded currency with a normal account. Even with gearing and leverage, this means that you can trade a lot of currency with a small budget. Forex mini accounts have smaller lots, all the way down to 10,000 units. This means that you can trade larger amount of forex for a smaller sum. Why is this beneficial? Consider that the forex market is very volatile. If the forex market moves in the wrong direction for your trade, then with a lot size of 100,000, you could very fast be looking at a significant loss. With a smaller lot size, your overall portfolio won’t be affected as much. This is important because there is a great deal of natural variation in the forex market and to effectively deal with the normal swings you need to have enough money in your account so that one bad trade doesn’t wipe out everything.

If you don’t even have $100 or just don’t want to risk, but still want to trade real time with real money, then you could consider a Forex Micro account. Not all brokers offer these though. A micro account if the smaller version of the mini account. With a micro account, you can begin trading for no more than $25, I have even seen brokers that offered $5! You’re not going to make any money with a micro account, but you will get some experience with the platform and market.

Demo accounts are good and all, but they don’t give you the real experience of actually trading on the market with your own money. Forex trading is a psychological game and there’s a lot of emotion going on. Greed, panic, fear, it’s all something you will have to learn how to deal with, if you want to be a successful forex trader. With a mini or micro account you can learn how to control your emotions and not risk your house, and the first winning trade will feel much better than winning on a demo account. It should be said however, that demo accounts are still good for absolute beginners, just to familiarize yourself with the platform. It’s not good to be looking frantically for a button when there’s a trade to be made. You should know how to trade in theory before depositing any money into a forex account.

How to Choose the Forex Broker?

Choosing the right forex broker is one of the most important tasks faced by a beginning trader. Choosing the most suitable broker is as important as leverage, money management, and risk controls are, but it can be a complicated, difficult and arduous task. But don’t make any mistakes here: just as high leverage may wipe out your account and destroy your confidence in yourself and completely erase your belief in forex, choosing the wrong broker has the potential to end your trading career even before it has begun.

We’re not just speaking about a fraudster who poses as a broker here. The dangers associated with such ‘business partners” is self-evident, and we won’t waste your time discussing the obvious perils of associating with such people. The wrong broker that we discuss in this article is the broker who, while decent and legitimate, does not cater to your needs as a beginner, inculcates faulty practices in your trading style, or promotes the application of flawed strategies. So in this article we want to discuss those incompetent brokers, and unfriendly brokers, in addition to the fake brokers with which most people are familiar with.

Fake brokers steal your money, run your stops, and in general do their best to cause you as much hardship as possible. Incompetent brokers misquote prices, cannot execute orders in a timely and exact fashion, are unable to facilitate withdrawals properly, and basically don’t know what they are doing. Unfriendly brokers don’t care much about you: they keep initial deposit requirements, and minimum leverage high, so that the beginning trader has to learn how to swim in the middle of a storm. In addition, brokers that are unfriendly to their customers sometimes belittle retail traders due to their low net worth, and low rate of success in the markets. They will treat professionals and retail traders differently.

Of the above three, obviously, we should avoid the fake brokers at all costs. There’s nothing to be gained from trading with them, and a lot that can be lost. We need to keep a healthy distance between ourselves and the incompetent brokers as well. Even if they are decent, the service provided by them is often close to being useless due to the many problems involved. Unfriendly brokers are no use to retail traders either. They usually will see you as cannon fodder, as they offer their best spreads, greatest customization options to their wealthy clients. The unfriendly broker may sometimes be good for a wealthy, successful forex trader, but since most of us are not, we wouldn’t want to associate much with the group.

If these are the dangers involved, what should we do to screen and choose the right broker for our character and needs?

There are some very simple guidelines that we can utilize while picking the right choice for our needs. Aside from the obvious safety issues that necessitate regulatory cover and supervision, the first principle must be about minimum initial deposit requirements, and leverage options. If either of these is too high, we’d better look somewhere else, because as beginners we have very little chance of making successful use of these at this early stage. And remember also that if you can’t generate good returns in pips with a low-leverage position, there’s no possibility that you’ll do better with one that utilizes higher leverage. The second issue is about the availability of online teaching tools, and tutorials that are directed to beginners. If the firm takes the time to create these and publish them at its website, there’s a good chance that it targets the retail segment, and has to accommodate their needs and wishes as discussed before. The third criterion must relate to the trading platform: how reliable are the servers, how consistent are the spreads? Does the platform enable limit orders and trailing stops? Is every detail of the software discussed and explained in detail? How many pairs are there available for trading?

Indeed, the issues related to the trading platform are some of the most crucial in determining if a broker is suitable for us or not. The beginner does not need a trading software that is extremely powerful and feature-rich, because he doesn’t possess the knowledge and experience necessary for exploiting all those options just yet. However, ease of use, and user-friendliness are paramount to the beginner’s needs, because if he can’t be comfortable with even the basic aspects of the software, it is unlikely that he will find the extra energy necessary for analysis and the creation of strategies. So when you are screening brokers, make sure that you devote adequate time to examining and analyzing the software package.

Finally, is the customer support supportive enough and patient when issues inevitably arise? When there are misunderstandings, do they abide by the principle that the consumer is always right within reasonable limits? Can you get answers to your questions? The role of customer support is especially important because if issues arise on fund deposits or withdrawals, the troubles that result may be nerve-wracking, to say the least.

You should explore the responses to these questions, and beyond them, you ought to make sure that the offer of the broker matches your needs and expectations as precisely as possible. There are many brokers in the markets these days, and with sufficient effort, there is little doubt that you’ll find one that matches your needs eventually. This effort at the beginning will save you from lots regrets and headaches in the end, and may well make the difference between a career that ends at the beginning, and one that leads to unlimited riches.

FXClub – Fx Trading Broker

FXClub is an online forex and futures broker, established in 1995, and one of the longest running online retail forex brokers. FXClub is different from your average online broker in some ways for good and bad, which we will look at in this review. What sets FXClubs apart from other brokers is mainly one thing: Zero Spreads. Most online brokers make their profits by adding a few pips on every price they charge the client. This way they make money of every trade being made. How much is being taken in spreads is different from broker to broker, but it is a known fact that brokers that charge spreads often raise them during hectic trading times, such as when there is a release of forex news. FXClub does not use spreads, but instead charges a fixed commission on all trades.

This is in my opinion a good thing. Why? Because the broker will then be interested in you being successful and profitable. After all they will make money whether you win or lose, so it is in their best interest to see you succeed. Brokers who take their commission in spreads are more likely to engage in practices such as stop-loss-hunting and manipulation to get their profits. Even if this is rare, it is a real risk when you are trading online with some brokers.

Well, FXClub does offer you the option to trade with spreads in a classic account, so it’s really up to you.

FXClub has other nice features for the beginning and advanced forex trader. You can open a mini account with only $10. While $10 is obviously never going to be enough to make any meaningful money it is still appreciated that you can open an account and start trading with no more than that.

Of course there is also the option to test your skills first with a demo account. Try your trades on real time data and a fully functioning platform before committing any real money. Always recommended for new traders.

A thing that I really liked about FXClub was the large educational library available to clients. FXClub has been around for a long time and I think it shows in all the comprehensive guides and tutorials they have had written over the years. They also offer very good instructional videos and interactive seminars.

Another practical advantage of forex club is the desktop and mobile software available, which makes trading forex trough FXClub very flexible.

I took the time to test their support and as I can tell, they are open 24 hours and generally friendly.

I have traded with FXClub for some time now. It was actually the first broker I started out with some years back with only a couple of hundred bucks and very green. As I learned and won (and lost), I never had any problems with them, withdrawing and deposing was fast. They are definitely a recommended broker for new and old traders.

AVA FX – Fx Trading Broker Review

Ava Fx is an respected online broker that offers professional trading opportunities for traders of all levels. Ava FX is easily in the top end of current retail brokers available to the public. Ava FX as a broker was founded as a project by people in the marketing area of forex trading, which is different from many other brokers that are usually off-shoots of professional corporate traders and bankers. This doesn’t detract one bit from the seriousness or authenticity of Ava FX. On the contrary it has probably been one of the main reasons for the success of Ava FX. Their experience in dealing with traders has had a positive effect on the support and accessibility of their operation.
Ava FX is one of the most trustworthy personal retail brokers in the field for both beginners and more advanced traders. Ava FX is backed by a very large European finance group (totaling over $16 billion in AUM), with very good credit ratings from S&P (AA, the third highest). Their credentials are impressive and easily checked.

So what about their trading platform and broker? Is it any good?

I convinced my friend who is a serious pro trader (more specifically a day trader), to test them out for a prolonged period. He has now traded with them for three months and reports that his account is up around 150% since he began trading. He has not experienced any breaks in connection or had any problems at all with order execution, which to be honest, is really not that uncommon.

I tested their customer service by sending them some ‘hard’ questions through email and always received a fast, polite and knowledgeable response. They were very open about their operation even when I pressed them on ownership and other questions about their business.

AVA FX writes on their homepage that they provide a platform for trading that will never compromise integrity or fairness, and from what I can tell from my own and others experience, that seems to be true. Their platform is very easy and intuitive to use and has all the necessary options for an experienced trader to feel comfortable.

They currently offer demo accounts for new traders to play around with, which I suggest you try as there is no risk associated and you can learn a lot from doing so.

Other features of Ava FX include:

  • Over 20 currency pairs and commodities trading such as oil and gold
  • Free forex signals for your mobile phone
  • Absolutely no commission or fees
  • Fully functional demo account
  • Fixed spreads
  • Around the clock support (24-hours)
  • Daily analysis and recommendations
  • Easy payment through all the major credit cards and online banking systems (Paypal etc.)
  • Mini accounts available at only $100

Ava FX may not be the flashiest broker out there and they don’t advertise as much as other brokers, but they are reliable and very easy to deal with. I recommend them to any new or experienced trader.

Forex Yard – Fx Trading Broker Review

Forex Yard is a large online forex broker that offers clients the change to get in on the action on the worlds largest financial market, the forex market, where fortunes are made and lost every day. If you are searching for a forex broker that is easy to use with low spreads and good leverage of your money, then Forex Yard might just be the thing for you. With a low minimum deposit of only 100$, Forex Yard is certainly worth an extra look.

If you are an experienced forex trader, you will delight in the fact that Forex Yard has very low spreads, as low as 3-5 pips, that do not change with changing market conditions and upon release of news, where many brokers usually drastically raise pips.

You can open a so called super mini account for only 100$ and fund it with a number of options, including all major credit cards. Withdrawal can also be made by check, credit card, bank wire, paypal and some less known payment processors. Forex Yard is fast and easy to sign up with and start trading. You can get going much faster than the majority of brokers, so that is definitely a plus for their platform. Forex Yard also offer bonuses, at the moment at either 100% up to 300$ or the larger 10% up to 1000$. Thats a nice extra motivation to sign up with Forex Yard. Forex yard offer software that can be used everywhere, not limiting your trades to one computer.

One of the really good signs when you first sign up with Forex Yard it the availability of forex educational material such as downloads, ebooks and tools to use free of charge. I think this shows a real interest in helping clients get the upper hand on their transactions in the forex market. Traders who are just starting out will be pleased with the interactive Forex tutorial classes and the free demo and practice accounts available.

For traders who want to trade with ‘real’ money, there are several options ranging from the 100$ Supermini account to the VIP and also Professional accounts. It is nice to be able to choose an account type that is flexible to your needs.

Experienced and beginning traders will both enjoy the opportunity to take advantage of Forex Yards unique consultation service, which offers top of the line fundamental analysis and technical analysis as well as charts and signals to be freely used.

The support is live 24 hours and is fast, polite and skilled.

As an added bonus, it is now possible to trade some commodities such as oil and gold.

As a conclusion, I think Forex Yard is a very good and professional forex platform that stands apart from other platforms with the large support and education system they have. They also have many small features that other brokers don’t have, such as a very good stop loss protection and they never fix prices. They seem very respectable and professional to me, which is something I value. I recommend them.

Etoro – Fx Trading Broker Review

Etoro is a forex broker with a unique twist. Their forex trading platform is a clever and entertaining new take on forex trading that is more geared towards new traders and casual traders than towards the professional trader. Etoro allows new and old traders an opportunity to trade forex in an environment that is graphic, fun and easy and doesn’t require you to be a math major to understand what is going on. I believe they offer something new and interesting to the market that no one else has yet matched.

The etoro platform was developed and is now run by a young and very successful group of forex traders and programmers. This team decided to pool their talents together for what would be a complete 180 rethink of how to trade forex. The result was the Etoro platform which was truly one of its kind. It is perhaps best suited for two types of traders: The new and those looking for some part time excitement. It offers a friendly and easy environment where it is easy to pick up the basics of forex trading, while still having lots of opportunity for profit. Experienced traders may find the platform lacking in charting tools, but it is still possible to use as a broker. The simplicity and low initial deposit of only 50$ makes this platform perfect for beginners.

Etoro offers a wide variety of trading tools and educational material for their clients such as a wiki forex glossary and tutorials for forex traders which certainly are very helpful to get started. They also offer their own news and calender service, keeping you up to date by the minute on everything that is of relevance to the forex market (and that’s a lot!).

The whole concept behind Etoro is to make forex trading and forex education very accessible for all people regardless of background or education. If you have previously dabbled with success in poker or gambling and have a flair for numbers and probability then Etoro could be just the right platform for you to start your forex trading career, as the same skills transfer over to forex trading.

Etoro has low minimum spreads at 2 pips for all pairs and does not charge any commission. It is possible to open an account with no more than $50 and you can make trades with only $25. These two together makes it easy for a beginner to get in on the action. The leverage available at Etoro is currently as high as 400:1, which means that you can trade up to $20.000 for your initial deposit of $50.

Regarding customer service, Etoro is in the top, with fast and succinct responses in no more than a few hours.

The only negative is that cashout speed has been reported to be a little slow, although reliable, which is probably the most important factor in the end.

Etoro offers a special niche service that is best suited for beginners and casual traders and for those traders I recommend they take a look at the fun and exiting world of forex trading by Etoro.

eToro – Forex Platform. Free Unlimited Practice Account; 2 Pip Spread; Up to 400:1 Leverage!

List of Forex Brokers

I have put together a list of forex trading brokers that I believe to be reliable, honest and reputable. However, no broker is perfect.

Forex Brokers in Switzerland

Dukascopy This Swiss Forex Broker has been around since 2004. The minimum account size is high at $50,000. There is no MT4 platform

Swissnetbroker – This Swiss Broker opened in 2005. The minimum account size is much lower than Dukascopy at just $200. They also offer ECN services.

UK Forex Brokers

Forex brokers in the UK are heavily regulated by the financial services authority, potentially making them safer than many brokers.

GNITouch Now owned by Man Financial, a FTSE 100 company. Minimum account size is 4,000 GBP.

Alpari (UK) Established in 2004 and offers the Metatrader 4 platform

USA Forex Brokers

In recent years many US Forex Brokers have gone bankrupt, remember Refco? I think to give yourself the best chance, it’s important to choose a large broker that is profitable.

FXCM One of the largest forex brokers in the USA at retail level. Platform: FXCM Trading Station II, FXCM Active Trader, MetaTrader4.

Risk Warning: Currency trading involves substantial risk of loss, read full disclosure.

CMSForex This broker was established in 1999. They do not currently offer an MT4 platform, but the platform they use is easy to use.

Web Based Currency Trading

Oanda – Oanda is a reputable broker that has a good web based trading platform. They also have very low spreads

Managed Forex Trading Account

Managed forex trading accounts offer an alternative investment that has little or no correlation to the global stock markets. As a result of this it can be great for a further diversifying your investment portfolio. However, it must be placed under high risk alternative investment vehicles.

However, if you have read my other articles, I am always quick to say FX Trading is not easy and the vast majority of traders lose money. This is a very important point when it comes to a managed forex account.

The statement of most traders lose money is certainly not any different when it comes to a forex investment companies. The difference for the trader who is trading the managed accounts is that he or she has the opportunity to trade the fx market risk free. The trader is risking YOUR money, whilst earning commissions if he is successful, but will incur no personal loss if he blows the entire account. Unfortunately as a result of this, most online managed investment accounts perform very poorly and result in losses.

Managed currency trading accounts give the bad trader the opportunity to improve his trading ability, whilst risking other peoples money. This is clearly very appealing to a bad trader looking to improve his FX trading abilities, but not what you want for your money!

It is very important to do considerable due diligence on the trader or team you are letting trade your money. Most will claim to offer Professional managed Forex Accounts, but the reality is, very very few can actually live up to this title.

As always, a managed forex investment must be considered as high risk and only throw away money should be used. Whilst it may seem unlikely, many Online Managed Accounts actually do end very badly with huge losses. BEWARE!

Personally, I have seen literally hundreds of foreign exchange investments, below are a few of the better ones. These are not recommendations by me personally.

GalleonFX This foreign currency investment has been around for since late 2005. The returns have been high, but the volatility has been VERY high. 2006 returned +40% and 2007 returned +60%. Good returns. This could provide a good

FXCM Sentiment Account This Forex Investment Fund earned +36% in 2007. A good start, but it would be ideal to see a longer time frame before investing.

Will Your Forex Broker Go Out of Business?

Retail forex is a fairly new business, having started in 1998, and really only taken off in 2001. Initially, many forex brokers started with little capital. As the market has matured and become more mainstream, the requirements to stay in business have become more rigorous. The NFA (National Futures Association) is increasing capital requirements for US based firms – forex dealers will now need to have at least US$5 million in net excess capital.

This is a relatively small amount for a large firm, but only 1/3 of forex brokers will be able to meet these requirements. That leaves around 10 brokers in the US. The remainder will have to either find new capital or close their operations later in December when the new regulation takes effect.

The risk is that there may be delays in getting your money back if your broker is forced to close.

Checking Up On Your Broker

If your current currency trading broker is in the US, you can check on them to see how much net excess capital they have. Visit www.cftc.gov/marketreports/financialdataforfcms/index.htm. The more capital a firm has in excess of the $5 million minimum, the better the protection for your funds.

If you have a non-US fx based broker, check where they are regulated. Europe, Canada, Hong Kong and Australia have strong regulators and capital requirements. If your firm is based in a third world backwater, the regulation may not be particularly strong. You would need to ask why a firm would locate where there is less regulation – is it because they are perhaps less reputable?

To determine the broker’s strength, you should look at the number of employees. If they are a large, strong firm, they will have hundreds of staff who can provide 24 hour support. They should also have tens of thousands of accounts. A firm that has only a handful of staff is unlikely to have a huge capitalization or be able to provide the support you need.

Other factors include the broker’s spreads (the difference between the buy and sell price), and slippage (the difference between the quoted price, and what your order is filled at.

The latter is very important because it is not normally disclosed. In my experience, the worst slippage is when a firm does not actually put your order into the market, but instead trades against you. A firm that does this should be avoided at all costs. It in their interest for you to lose so that they can take your money. I have found that when a position goes my way, it can be impossible to close it out at any price when the fxbrokerage is trading against you.

Conclusion

Increasing regulation and capital requirements will cause an industry shakeout which may delay release of your funds. Avoid the hassles by checking on your current broker, and if they are not up to scratch, look for a new broker that is well-capitalized, and regulated firm.