The broker is a brokerage company and this company has contracts with various liquidity providers in the market. The broker is the link between the trader and the liquidity providers because the trader cannot execute trades directly through the liquidity providers. but The broker provides him with this service.
Broker Services
There are many services that the broker provides to traders, including facilitating the process of executing trades and sending them to liquidity providers. However, due to the presence of many brokers in the market, the competition between brokers has become great in order to attract the attention of the trader so that he can deposit money with them and they can profit from his deposits and trades as well.
Because of this fierce competition between brokers, each broker offers different services than the other and makes offers to attract traders to trade with it. Among these services are:
Spread & Leverage
Spread and leverage are among the most important services that you may need from a broker because the spread is the commission that the broker takes from you as a result of opening a trade, and the spread is one of the primary profit methods for the broker, and you will find many companies that may reduce the spread in order to be able to attract traders through it.
Within the spread service, you may find that brokers offer different accounts, some with very low spreads, even less than that image, some with fixed spreads, and some with zero spreads, but with a commission. The broker seeks to meet all of these things for the trader in order to satisfy all traders and obtain a larger number of traders.
As for the leverage, it is somewhat related to the liquidity providers. You will notice that some brokers offer a maximum leverage of 1:500, and you will find others offering a leverage of up to 1:3000. The matter is related to the policies of the liquidity providers contracted with by the broker.
MT4 & MT5 Platform
You will notice the presence of the MT4 and MT5 platforms in most brokers. This service must be present in brokers because trading platforms have become widely spread among various trading companies and it is difficult to find someone who trades using Web Trader.
Deposits and withdrawals
Among the services that the broker seeks to provide are withdrawal and deposit methods, so you will find many famous brokers that accept most of the withdrawal and deposit methods known among traders, such as Skrill, Neteller, and Binance. The speed of implementing withdrawal and deposit is also very important, as there are employees in these companies who supervise the review of withdrawal and deposit for traders so that they can provide the best service to the trader.
Technical support
It is natural that you will find technical support with every broker so that they can help you with any problem you may face or answer a specific inquiry. What distinguishes one broker from another is the Quick response to you and attention to the problem you face. The broker is keen to serve you in the best possible way and looks for a solution to any problem you face so that you are satisfied with the services it provides and do not leave him and go to another broker.
Bonuses and promotions
You will notice many brokers competing with each other by offering various promotions in order to attract the attention of traders by offering a deposit bonus or a no-deposit bonus for beginner traders.
There are monthly and weekly competitions on real accounts, and whoever achieves the highest profit percentage wins an amount of money from the broker. There are also competitions on demo accounts, and this is a good opportunity for the trader to trade and test his skills. If he wins the competition, he will get an amount of money to trade with or withdraw based on the rules of each competition, of course.
Some brokers offer different contests for example If you trade a certain number of lots during a certain period, you will win cash prizes or gifts. All of these things are offered to you by the broker so that you are interested in trading with him and staying with him so that he can profit from you and give you a portion of these profits by offering you gifts, cash prizes, and bonuses.
Account types
If you want to register a new account with the broker, you will notice that there are many accounts. These different accounts are provided by the broker to satisfy most traders, including those looking for a low or fixed spread or high leverage, or some traders will deposit a small amount. In this case, they want a mini account… etc
Every trading account you find at the broker will have these different criteria, and the broker will display them to you so that you can choose the account that is appropriate for you and the amount of your deposits.
Educational material
It is natural for the broker to provide educational services to traders so that they can understand Forex well and be able to make profits through that. The broker provides a webinar, which is an online meeting for traders, and the lecturer explains a trading strategy, an indicator, or a new product that has been issued by the broker…etc.
The seminar is an event between traders and broker employees. This is a good opportunity for them to meet face-to-face and learn from experienced traders.
How Brokers Make Money
Spread
There are many ways through which a broker can make profits, including the spread, which is the difference between the bid and ask price, and this
Commission
In some trading accounts, you may notice that there are accounts with a commission instead of a spread, and there are accounts with a low commission and a low spread, etc. The commission is fixed not like the variable spread. The commission differs between brokers, and it is also one of the highest profits that the broker obtains and relies on for his profit.
Trading
Brokers can also trade in the market and open trades just like retail traders, but broker trades are a bit different from retail traders, as they open their trades directly through liquidity providers.
Deposit and Withdraw Fees
There are some brokers that do not impose fees on withdrawals and deposits, but there are brokers that impose these fees, so this method is not relied upon by the broker as a primary method of profit, as it is considered the least profitable means for him.
The correlation between Broker and Liquidity provider
The broker contracts with liquidity providers to finance transactions that are opposite to those entered by traders. For example, if a trader wants to buy gold, the liquidity providers must sell gold in equal lots or even close lots.
This means that if the trader wins, the broker will lose, and vice versa. If the broker wins, the trader will lose. Liquidity providers are banks, big companies, Hedge funds, etc.
The role of liquidity providers
The role of liquidity providers is very important in the market. The Forex market or any global market moves through liquidity providers because they are the ones who own the money that in turn moves the market. You and I cannot move the market with a few lots. If all retail traders gathered to buy a currency, it would not move because liquidity providers have multiples of this money that moves the market.
There are two types of brokers in the Forex market, which are Market Maker and ECN. These two types differ in the way they execute traders’ transactions, as well as the leverage, spread, and services in general that they provide to traders.
Market maker
The Market Maker is a liquidity provider for the market and a broker at the same time, but this does not negate the fact that it has contracts with liquidity providers as well. The Market Maker does not pass traders’ Transactions to liquidity providers and can manipulate traders’ trades, prices, and spreads as well.
Since the market maker is a liquidity provider, it opens trades that are opposite to the trader. If the trader wins, the market maker loses, and vice versa. However, since the market maker does not pass the trades directly to the liquidity providers, he can check your trades and can also manipulate these trades and spreads, this indicates that it is possible that it has the intention to make the trader lose.
ECN
We can say that the ECN broker is completely different from the market maker, as it passes the traders’ Trades directly to the liquidity providers and does not have the authority to view these trades or manipulate the spread or prices. This type of broker is also called STP (Straight Through Processing)
ECN brokers are more popular among traders because they feel safer when trading with this broker.
4- The difference between ECN and Market Maker
There is a difference between both brokers, In order to clarify this difference, we had first to clarify what a broker is, its Correlation with liquidity providers, and how a broker profits, so that you know the intentions of both and know how brokers deal with traders.
Spreads and Commissions
ECN: The ECN broker offers a variable spread that is much lower than the Market Maker and has different accounts, including fixed spreads as well, in order to be able to attract traders who are looking for such accounts to trade during news time. As for the commission, the commission is also small.
Market Maker: Market Maker offers mostly fixed spreads and there are also accounts with variable spreads but this spread will be slightly higher than ECN and due to the competition that occurs between brokers with each other you may see some Market Maker brokers offering spreads even lower than ECN.
Slippage
Market maker: Price slippages are very normal in the Forex market and can occur during news or economic crises and important events. This is normal, but it is possible that the market maker intentionally makes a price slippage in order to make traders lose because, as we mentioned previously, the market maker is a liquidity provider that opens trades opposite to the trades that traders open.
If a large number of traders open many trades on a currency and the number of traders who profit is more than the percentage set by the broker in order to maintain his profits, the broker will resort to some malicious methods in order to compensate for this loss. He may pump a large amount of liquidity into the market in order to push prices to a certain area so that the price reaches the stop loss for the traders. Thus, he becomes the only one in the market and moves the price as he wants.
ECN: As for the ECN broker, it is unable to control prices and does not have enough liquidity to move the market to cause price slippage. Its only role is to pass the trades to liquidity providers to be executed through them.
But this does not negate the fact that liquidity providers are also able to see traders’ orders and Stop losses because they are the ones who execute these transactions through them, but we can say that in this case, your enemy is one less.
Leverage
ECN: Leverage varies from one broker to another based on the contract between liquidity providers and the broker itself, but in most cases, you will find that the ECN broker offers Low leverage.
Market maker: As for the Market Maker broker, it offers a very large leverage. It is possible to find unlimited leverage, and this is normal for a broker who profits from your losses. He tempts you to choose a large leverage, and thus you open high Lot Trades and then lose your money.
What is better market maker or ECN?
The best between the two depends on the strategy you follow. Market Maker may offer good accounts with spreads and leverage that are suitable for you, but you will not find such accounts in ECN.
However, the ECN is generally the best among traders. Even if you get a good account with the market maker, you will expose yourself at any time to price manipulation, and the market maker may make price slippages to make you lose.
ECN brokers will have many accounts that may suit you. Due to the intense competition between brokers, you will find accounts with high leverage and low spreads. There are also accounts with fixed spreads. You will enjoy fast execution of ECN transactions and no manipulation of prices. This type of broker has many advantages that attract the trader who is looking for safe and simple trading.
Factors to consider
In order to choose the right type of broker for you, you must first determine your trading style and the strategy you use, whether it is possible to apply this strategy with this broker or not, And the size of the deposit that you will make, will it be small or not and will the broker allow you to deposit small amounts? When you determine these factors, you will open a demo account with the broker and then test the broker and the account that you will work on.