Make Sure to Do Broker-Dealer Due Diligence

Retail brokers can be divided into market makers (dealers) and ECNs (electronic communications networks). ECN is the way the true Interbank market operates. ECN brokers can have from one to a dozen liquidity providers. Market makers now also speak in terms of liquidity providers to avoid the stigma of the market-maker moniker. Each approach has advantages and disadvantages. Most retailers are still market makers, but more and more are venturing into the ECN world. The Big Three (see further on) now offer a market-maker venue to small traders and an ECN venue for their larger and institutional clients.

Market makers are going to be better at providing liquidity in slow or fast markets; ECNs are perceived as more legitimate in not engaging in activities market makers have at least been accused ofâ
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

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