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If you’re already trading, or if you’re brand new to the scene, you know that you need a forex broker. There are literally an endless selection of forex brokers out there to choose from, all running similar marketing campaigns featuring the same platforms, forex market analysis and money making possibilities. But don’t be fooled! Not all forex brokers are the same. In order to avoid any conflicts of interest, you simply must make the switch to an ECN forex broker such as Vantage FX. We just can’t stress this point enough.
In an industry like the one that we work in as traders, we rely on our forex broker to essentially act in partnership with us. We rely on them and their infrastructure to be able to quote forex market prices and to execute our trades as soon as we click that mouse button. So if this forex trader/forex broker relationship truly is a partnership, then that means that both of us should be making money together, right? If the relationship truly is a partnership, then there definitely shouldn’t be a conflict of interest where one party makes money from the other party’s losses, right?
Now I know that not having any possibility of a conflict of interest in this relationship seems like common sense and that you’ve never heard that the possibility could even arise from any forex broker’s marketing material, but we have to make you aware that not all forex brokers run a symbiotic business model which is beneficial for all.
Forex brokers can choose to run one of two business models:
ECN Forex Brokers Such as Vantage FX
They can choose to run an ECN business model such as Vantage FX, where the broker makes money from the volume that their clients trade by taking a cut of the spread or ECN account commissions.
By aggregating their price feed from a large number of banks through liquidity provider sources, ECN forex brokers allow their clients to access the most competitive price feeds available. As a result, they are given the best chance to trade consistently.
There is simply no reason for an ECN forex broker to be anything other than completely transparent about the prices that they display on their platform and if you’re trading on the Vantage FX MT4 platform, then you can be totally confident in the transparency of their ECN price feed.
What makes this model far superior to that of a market maker, is that by making money off just the spread, they want you to keep trading with them for the long term. Put in layman’s terms, an ECN forex broker such as Vantage FX, literally NEEDS you to be profitable or you won’t continue to do business with them.
ECN forex brokers don’t want ‘churn and burn’ forex traders who might be encouraged to trade an obviously unprofitable scalping strategy with no edge. They want consistently profitable professional traders to trade through them.
With the acceptance of trading your own personal forex account in the mainstream over the last decade or so, a huge amount of new business has flooded into most forex brokers. An ECN forex broker model chooses to treat this new business with respect, helping to educate them on the finer aspects of becoming a profitable forex trader. They want them to become a consistently profitable trader in the long term so they can continue to trade with the broker after all.
Make the intelligent decision. Choose or switch to an ECN forex broker such as Vantage FX immediately.
The alternative business model that a forex broker can run, is called being a market maker. Under this particular model, the forex broker takes the direct opposite side of their clients’ trades, meaning that they profit when the clients lose.
Instead of aggregating prices from the true interbank market like an ECN forex broker does, a market maker essentially runs a faux market, offering their own prices as almost an overlay of the real thing. Because they quote what they want, their price feeds are open to manipulation and it is common place for a market maker to extend a run just that little bit further if it means knocking out an entire cluster of stop losses on their book.
Market makers don’t want profitable, professional forex traders, they want a tonne of new losers to quickly burn their accounts and to never be seen again. As a result of this, new business is treated entirely different by a market maker. Because of the conflict of interest that exists between trader and broker under this business model, market makers are more likely to encourage bad habits in the chase of a quick buck.
Their marketing campaigns are full of quick gimmicks like new deposit bonuses and their market analysis blogs feature posts with titles such as ‘master a 1 minute scalping strategy overnight’. They know their house edge with wider spreads than an ECN broker will offer and are happy exploiting their clients to gain from it.
When it comes to choosing a forex broker, the decision is of course entirely your own. But as we’ve outlined here, there really is only one correct forex broker option that any smart trader should take. Choose to trade with an ECN forex broker such as Vantage FX and build a lasting partnership as your account size expands.