Trading with an ECN Broker?

Spread betting is a relatively new way to trade the financial markets, available mostly in Europe and the UK, spread betting firms have offered various attractive trading services that offer the small size trader and investor a great alternative way to deal in the financial markets.

The forex market is full of pseudo-brokers on one hand, and expensive ECN brokers on the other. ECN forex brokers are great, but generally require more money in order to open a new account, and they all charge on the ‘Carry’ trade, which can often be very expensive, even for a minor interest rate differential.

This is where spread betting came in handy, many good spread betting firms in the UK, will offer quarterly contracts on all the major currency pairs, unlike ECN brokers there are no interest charges, and you are effectively trading the forex market in a cost efficient way. Spread betting firms are generally not suitable for trading in big size or for scalping, but they are okay for just about anything else, and better in terms of cost compared to ECN brokers. Spread betting is perfect for position /swing trading the forex market, and the savings on interest can be massive overtime.

How does it work?
The spread betting market is a kind of market maker broker, when you buy $10 per pip on EUR/USD your order may or may not reach out to the rest of the world, if another client is has sold $10 per pip on EUR/USD your orders will be exactly offset, and no order will leave the spread betting company, if you bought $12 while the other client sold $10, then $2 would reach out to the market.

All in all, the overall structure of the Spread Market Makers involves placing bets among themselves (the spread betting firms among themselves), this market is quite large, and at some point it is connected to the real forex market, or stock and commodity market if you are trading those.

Spread betting with a good firm is absolutely safe, and the savings for the beginner or small trader are enormous in the long run. If however you are successful in your trading, and wish to make large trades in the long run you will have to progress from Spread betting firms to actual ECN brokers, because Spread betting firms cannot handle big money trading, at least not as profitably as ECN brokers.