The Forex broker market is made up of two types of brokers. Market Maker forex broker and ECN Forex broker. The former is a type of model where the forex broker makes their own markets. In other words, the bid and ask prices are created by the broker. Under the market maker model, the forex broker takes counter position against your trades, also known as hedging. Therefore in this model there are two outcomes, when the trader wins, the broker loses and vice versa. As obvious from this, the biggest disadvantage is that if you end up winning too many times, chances are that the forex broker could either shut down your account or give you re-quotes.
With a Forex ECN broker, the market is transparent. This means that due to the electronic network, the bid and ask prices are made by the participants, known as liquidity providers. The liquidity providers are nothing but financial banks and institutions that the forex broker has a tie up with. Of course, besides the big institutions, individual traders also make up the market.
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Propagates are one of the most essential components in Currency trading and despite ECN Foreign exchange agents becoming more popular, there is a significant disadvantage with them, namely the way the spreads are shown.
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