The interbank market is the market of the “big players” that common traders don’t have the access too. These are the market players that have huge shares and investments in the market so their trades matter a lot. However, a common trader who wants to make money from forex market cannot have direct access to them. The way to go about it is to find a broker first and open an account with this broker. The broker serves as the middle party to conduct all of your trades. The different between the bid and ask price offered by broker is his way of making the profit.
In short, every trade you make with a broker proves to be a profiting trade for the broker. The difference between the ask and bid price is fully dependent on the broker’s discretion, however, they are under strict regulations so they can’t take unnecessary advantage of this autonomy. There are several things that make the traders uncomfortable about retail brokers and the transparency of trades is one of those concerns. That’s when the ECN brokers step in. ECN stands for Electronic Communications Networks and the brokers in this network are most reliable brokers.
These brokers take ask and bid prices from all the institutions, brokers and any entity that’s on the ECN. After obtaining these quotes the ECN broker will place the best ask and bid price for its traders. What this means is that you will mostly get the most recommended ask and bid price from ECN brokers. ECN brokers are known for their tight spreads and tight spreads mean that the costs for traders are reduced. The reason behind such tight spreads is that ECN brokers are paid a commission on the number of trades they conduct and so their primary target is lots of trades.
The ECNs offer retail traders the best ask and bid price because they are not earning from the spread, which is the case with retail brokers. The ECN broker will be paid a fixed commission for every transaction made by its customer. This is the reason the size of spread doesn’t matter for ECNs whereas this is the major way of earning profits for retail traders. Eventually, it is the retail traders who benefit from the tight spreads since they can get better return for the currency they are selling and obtain a currency at lower rates.
You can see hundreds of online traders offering you the opportunity to trade in the forex market. They have lots of things to attract you from bonuses, big leverage points, rebates, reliable indicators etc. but it is always highly recommended that you pick an ECN broker. ECN brokers are also available online. You can refer to online reviewing websites for forex brokers and the comments by traders to find out which broker is the most reliable one. You must remember that ECN brokers are known for being fair since they have no reason to trade against you whereas the retail brokers are notorious for this act.
