Retail trading has come a long way since the need to hold paper share certificates and posting them to a company before you could even trade them. The technological advancements in the last 15 years alone have opened up the world markets to anyone with an internet connection and a PC or mobile phone. You can now trade almost any Stock, Index or Currency pair from around the world from a number of brokers, some even offer all of this under one roof, but who to choose? And what are the differences? Well let’s take a look.
There are two main types of Broker, a Market Maker, or B-Book Broker as they are sometimes known, and an ECN Broker. A Market Maker acts like a bookmaker in that they make their own prices and spreads and when a client places a trade, they take the other side of their order, effectively betting against the client, with the expectation and the hope that the client will lose and therefore they will profit. Most client orders do not even reach the market place due to this as the trades are done internally by balancing and rebalancing their own positions (their B-Book).
“The ECN broker set up is therefore geared towards the clients best interests as they have no desire to manipulate pricing…”
From this you can then understand that if the client places an order that doesn’t suit their brokers own positions they have the power to not fill your order, then issue you a requote or widen the spread so you get filled at a worse price. There is also a belief that the clients own stop levels can be sought out as the broker can visibly see your entries, but you can do your own research on this.
These points all highlight that the Market Maker model does not have the client’s best interests in mind due to their conflicts of interest. So now to the alternative.
An ECN broker (Electronic Communications Network) has a very different set up. They have relationships with Tier 1 Banks, Financial Institutions and the Exchanges themselves who act as liquidity providers and send their pricing for various assets electronically to the ECN Broker. These prices are all pooled together and displayed to the client with just the best Bid and Offer (Buy and Sell) price available. The broker has fibreoptic connectivity to trade servers such as NY4 and LD4 to facilitate lightning fast execution. This benefits the client immensely as not only do they get the most competitive price they can but directly from source, no addition to the spread, no broker betting against you and no requotes causing you to potentially miss key entry points.
Unlike the fixed spreads of Market Makers, ECN brokers offer variable spreads allowing the benefit of increased liquidity and therefore improved spreads to go directly to the client each time. Spreads can be as tight as zero or “choice” as it is known. The ECN broker therefore only has the charge of a small trade commission as their main revenue so looks to capture volume from the client rather than the hope that they lose.
The ECN broker set up is therefore geared towards the clients best interests as they have no desire to manipulate pricing, but for them to stay in the game and be profitable so that they can continue to trade.
So now that these two main broker set ups have been explained you can judge for yourself as to which type you will want to use in future but it’s certainly worth having one ECN broker account. There are other choices to be made such as what products are on offer, what margin can be attained and where the added value can be found with services such as your own account manager or unique trading technology. Perhaps most importantly, you want to work with a broker who is well established with a strong history and offers fund security.
Well it may not surprise you that Tradeview is an ECN broker and offers all of the positives above: Multiple instruments, FX, Crypto, Equities, Indices, Commodities and more. Up to 400:1 margin, your own account manager, some of the newest technology to help clients trade such as trade copiers and a soon to arrive Algo editor that anyone can set up (I’ll be writing an article on this in the next few weeks as it’s a real game changer). Tradeview are also over 14 years young with a strong history and offer segregated client funds for added peace of mind.
So please feel free to see for yourself, apply for an account here or get in contact with me if you want to find out more… there’s a reason why Tradeview is one of the fastest growing Brokers out there!
Head of UK Business Development