Retail brokers can be divided into market makers (dealers) and ECNs (Electronic Communications Networks). ECN is the way the true Interbank market operates. ECN brokers can have from one to a dozen liquidity providers. Market makers now also speak in terms of liquidity providers to avoid the stigma of the market-maker moniker. Each approach has advantages and disadvantages. Most retailers are still market makers, but more and more are venturing into the ECN world. The Big Three (see below) now offer a market-maker venue to small traders and an ECN venue for their larger and institutional clients. Market makers are going to be better at providing liquidity in slow or fast markets; ECNs are perceived as more legitimate in not engaging in activities market makers have at least been accused of—stop harvesting, ballooning spreads, and requoting. ECN platforms are somewhat more difficult to use and require more diligence on the part of the trader.
The beginner should first determine what tools he or she will need to trade. Of course, the more you study, the more you learn and the more you want. Your needs may change. Download and conduct due diligence on at least five of these broker-dealers’ demo platforms. Today, many brokers provide a variety of different platforms to even small traders. Use the checklist I provide to research their services in the categories noted and how they relate to your needs. Keep notes. I answer some of the questions for you; more can be found on their web sites, in their documents, and on the FOREX Internet review boards and forums.
I like to send an e-mail question or two to sales to gather information but also to see if and how they respond. Ask to be contacted back by e-mail. Most sales reps will ignore your request and call you, a few will e-mail you, and many will not contact you at all or simply add you to an automated mailing list. Six years after writing the first pages of the first edition of Getting Started in Currency Trading, I continue to be amazed by the inability of many brokerdealers to answer an e-mail at all—much less in a timely manner!
Increasing capital requirements for retail broker-dealers will continue to shake up the retail FOREX industry. I also expect mergers between major players to continue and even a musical chairs effect is on the horizon as smaller firms jockey for position vis-à-vis increasingly onerous regulations. The entire marketmaking paradigm may be in a fast fade. Most traders now have multiple brokers—typically a primary and two secondary broker-dealers. Given the flux of the industry, this seems like a good idea.
Traders have vastly different experiences with brokers. Listed below are some that I would not fund with five cents but that receive wonderful reviews from others. Certainly study the reviews—but in the end, make your own call.
Use the Broker Due Diligence form to keep track of the brokers you review and or test. The reader can download this from the Getting Started section of www.goodmanworks.com.
TIP: The author has used 14 FOREX brokers in the past 10 years of trading. No broker is even close to perfect. Dealing with a FOREX broker—no matter how good they are—is part of the business of trading. Use at least one primary broker and two back-ups. Do not let poor communication from brokers distract you. Do not be surprised when a previously great broker turns mediocre for no apparent reason. Keep your eye on the ball.
The beginner should first determine what tools he or she will need to trade. Of course, the more you study, the more you learn and the more you want. Your needs may change. Download and conduct due diligence on at least five of these broker-dealers’ demo platforms. Today, many brokers provide a variety of different platforms to even small traders. Use the checklist I provide to research their services in the categories noted and how they relate to your needs. Keep notes. I answer some of the questions for you; more can be found on their web sites, in their documents, and on the FOREX Internet review boards and forums.
I like to send an e-mail question or two to sales to gather information but also to see if and how they respond. Ask to be contacted back by e-mail. Most sales reps will ignore your request and call you, a few will e-mail you, and many will not contact you at all or simply add you to an automated mailing list. Six years after writing the first pages of the first edition of Getting Started in Currency Trading, I continue to be amazed by the inability of many brokerdealers to answer an e-mail at all—much less in a timely manner!
Increasing capital requirements for retail broker-dealers will continue to shake up the retail FOREX industry. I also expect mergers between major players to continue and even a musical chairs effect is on the horizon as smaller firms jockey for position vis-à-vis increasingly onerous regulations. The entire marketmaking paradigm may be in a fast fade. Most traders now have multiple brokers—typically a primary and two secondary broker-dealers. Given the flux of the industry, this seems like a good idea.
Traders have vastly different experiences with brokers. Listed below are some that I would not fund with five cents but that receive wonderful reviews from others. Certainly study the reviews—but in the end, make your own call.
Use the Broker Due Diligence form to keep track of the brokers you review and or test. The reader can download this from the Getting Started section of www.goodmanworks.com.
TIP: The author has used 14 FOREX brokers in the past 10 years of trading. No broker is even close to perfect. Dealing with a FOREX broker—no matter how good they are—is part of the business of trading. Use at least one primary broker and two back-ups. Do not let poor communication from brokers distract you. Do not be surprised when a previously great broker turns mediocre for no apparent reason. Keep your eye on the ball.
