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Monday, April 30, 2012

5 Questions To Ask Forex Brokers Like Tadawul FX

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Cell Site (Photo credit: Natesh Ramasamy)
By Johnny Timotherll

I have become extremely suspect about a a number of forex brokers that I have traded with during the last few months who claim to have an ECN foreign exchange offering. Obviously trading with an ECN broker is the ultimate as you're certain to receive the absolute best prices in the market and you may place big deals. It appears to me that there are allot of small forex brokers around the place who have jumped on the ECN bandwagon and are calling themselves an ECN fx broker when all that they are doing is takingsomeone else's ECN price feed and making a market on the price feed themselves in order to profit from their clients losses.

It's often hard for brand new traders to be able to pick the real ECN forex brokers from the bunch when these days there are such a lot of fake ECN brokers out there. To assist brand new fx traders in determining whether or not a forex broker is actually an ECN forex broker or simply a fx broker taking a price feed from another broker. Below I have outlined several uncomplicated tests that you can carry out.


1. Is there a minimum distance that you can put your take profit and stop-loss orders away from the current market price?

2. Will your forex provider slow or freeze price updates?

3. Do your forex brokers graphs differ from the price shown on your order ticket?

4. Will your fx broker only pass on negative slippage?

5. Does your fx broker accept orders larger than five standard lots?

Is there a minimum distance that you can set your take profit and stop-loss orders away from the current market price?

A True ECN broker will have no limits on the distance that you can put your stop-loss and take-profit orders away from the present market price. Market maker forex brokers apply this minimum distance rule to prevent scalpers and day traders from taking money off the forex broker when trading intraday. True ECN forex brokers do NOT aim to exploit forex trader losses they're motivated by flow only, meaning the more actively you trade the more money you make, this is primarily why they charge a commission and will NOT have any limits on your order placement.

Will your forex broker slow or freeze price updates? In an actual ECN environment you will find a large number of pricing updates each minute this means that the prices a True ECN forex broker will show ought to fluctuate quite allot as prices are set in the ECN market place. Forex brokers which are NOT true ECN fx brokers are not likely to show all the ECN price updates as it reduces load on their servers, after all they don't need to show all price updates as they're NOT passing on the orders to the ECN environment anyway but rather warehousing them internally.

Do your brokers charts differ the bid price displayed on your order ticket?

Several forex brokers that are NOT True ECN fx brokers adopt a piece meal approach to their Metatrader 4 setup and simply plug in an ECN price feed to their current NON-ECN Metarader 4 offering. When brokers do this it means that the graphs won't mirror the prices which the ECN price feed exhibits. This is what one would call a "Sticky Tape Offering" as there has been little attempt shown by the fx broker to setup their Metatrader 4 environment properly. Brokers who's setup exhibits this characteristic are NOT likely to be have a True ECN offering.

Will your forex provider only pass on negative slippage? A lot of traders think that slippage is negative feature of trading, however this is in-fact NOT the case. Slippage is quite normal even inside a True ECN environment however the slippage that occurs will work for you as well as against you. Slippage that works in your favour is often known as positive slippage and slippage that works against you is generally known as negative slippage. Sadly some brokers capitalise on this and add a couple of pips to the negative slippage and simply don't pass on any positive slippage at all. A tell tale sign of a fake ECN forex provider is one which does NOT pass on any positive slippage.

Does your provider accept trades larger than 5 standard lots?

A True ECN market place is intended to provide traders with deep liquidity from the many contributors. Obviously if a broker is showing ECN prices but is really a market maker forex broker then they will simply not be able to pass on all the benefits a True ECN has to provide. A good test is to simply place a large trade on to see whether or not it gets accepted or rejected, a True ECN forex broker will have no problems taking on an order that is five standard lots in size.

I've performed these five easy tests on over fifty separate brokers around the globe and my findings were really rather shocking. Out of in excess of 50 different forex brokers that say they are ECN brokers. I have discovered that there are only 8 fx brokers who pass all five checks and could be regarded as a True ECN broker. Of these 5 brokers only three offer the Metatrader 4 trading platform to their clients.

I am not in a position to tell you which forex provider fits you best as each trader has different necessities, however out of these three brokers I've personally selected to deal with IC Markets purely due to their pricing and extremely fast order execution speeds.

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