One of the most basic questions when discussing Forex trading is the type of broker used. The answer will of course depend on your situation, but let’s take a look at the main differences between an ECN account and a standard account. ECN stands for Electronic Communication Network, which means computers are connected. This is a rather broad term, but when it comes to Forex trading, it can be quite profitable. The main reason why using an ECN can help you is because it offers liquidity over the network. In other words, there are a variety of bids and offers out there available for trading, meaning that the spread between the ask/bid can be very tight. For example, you might see spreads as tight as breakeven. You can buy or sell for the same price, but there is usually some kind of commission involved. Meanwhile, you can visit http://www.vixbrokers.com/forex/ecn.html to hire some of the trusted ECN brokers.
That’s why you should pay attention to commissions, as they can get a little expensive if you don’t pay attention to them. In general, the commission is determined to be about half of the PIP. In the end, it is cheaper if you are a short-term trader and have both in and out positions. However, you might think that even long-term traders can take advantage of this, and although that is true to a point, the truth is that it is not profitable for long-term traders. This is because long-term traders don’t have to worry too much about transaction fees.
Another thing you have to watch out for is that liquidity can dry out sometimes. For example, if you have Nonfarm Payroll Numbers out, many traders will choose not to be in the market. While your typical spread on the network might be 0.2 pips on the EUR / USD pair, right around the announcement you might see something closer to 15 pips. It can drastically change your profitability if you are not careful.
As a general rule, the network will maintain relatively tight spreads most of the time, especially if it is a larger network because there are more traders involved. Ultimately, profitable traders can take advantage of one type of broker, ECN or standard.