HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

Tight spreads. High liquidity. Instant execution


It’s commonly believed that success in currency trading comes from professionalism and luck. However, often it’s far from the truth. You should always remember that it’s not traders who buy and sell assets in Forex, but brokers, and the outcome of every transaction largely depends on them. Brokers build their strategies of operation around their own interests and needs of their clients, hence the differences in trading with various brokers. In this article, we’ll look at some of the aspects of exchange trading, and break down the most important criteria a newcomer should focus on to avoid getting involved with an unscrupulous broker.

Spreads


First, when choosing a broker, you need to pay attention to the size of the spreads offered. We already spoke about spreads here. Right now, we'll talk about why tight spreads are important.

Spread is one of the main sources of income for Forex brokers. They act as intermediaries between private traders and large financial institutions, providing traders with access to the global foreign exchange market. The spread is a fee for this access. It can vary depending on the instruments (currency pairs) and the personal interests of the company.

Obviously, the tighter the spread, the less money traders lose on the difference between buying and selling prices. Forex brokers offer a much lower difference than currency exchange offices.

For example, if an exchange office buys €1 for $1.03 and sells it for $1.15, this means that its EUR/USD spread is 0.12. If you buy and immediately sell 1 lot ($100,000) in such an exchange, you will lose $12,000, while brokers have access to the primary liquidity providers (large banks, investment funds, etc.) and their spreads usually make up just small fractions of the trade. A broker can offer the same EUR/USD pair with a $0.00005 spread, which is 2,400 times less than that of an exchange. The difference is obvious!

What does it mean for the trader? This means, you can work with large amounts of currency while only paying small commissions. That is why the size of the spread is one of the key points when choosing a broker.

What does it mean for a broker? In order to receive a stable income and, at the same time, not scare away clients with huge spreads, they need to acquire a reliable liquidity provider. Thus, we move on to the next important topic.

Liquidity


The liquidity of any asset is the level of its demand in the market. In other words, it indicates how quickly it can be sold at the market price. The asset with the highest liquidity is, of course, money, it is self-liquid.

Depending on how quickly an asset can be exchanged for money, liquidity is divided into three types: high, low, and medium. Highly liquid assets are money, stocks, bonds, short-term bank deposits. You can sell shares of global giants, such as Apple or Tesla, at the market price in a matter of seconds, while, for example, selling real estate, which is a low-liquid asset, can take a very long time.

By assessing the liquidity of assets, you can determine the liquidity of the company that owns them. The liquidity of a company, therefore, is its solvency. High liquidity protects the company from crises. The higher liquidity is, the more you can trust the company.

The broker’s income is the difference between the liquidity provider’s spread and the final spread for traders. This is why it’s so important for a broker to find a liquidity provider with the smallest spreads so that they can be increased while remaining attractive to clients. A trader should pay attention to this, because the broker’s final spread in this case is likely to be also smaller.

There are brokers who themselves act as liquidity providers in their clients without receiving liquidity from major market makers. In this case, the broker makes profits from traders who "blow" their deposits. This, of course, worries clients, since this means that the broker is interested in their failure. On the other hand, such conditions mean faster order execution, which is beneficial for those who prefer high-frequency trading. Unfortunately, some brokers actually abuse their power by providing non-market quotes to their clients. However, there is always a risk that professional traders will bankrupt a high-income broker, which can only be avoided through balanced risk management. For example, using a hybrid operation model, as we do in Grand Capital, transferring high volume clients to a larger liquidity provider, acting as a market maker for those who trade in low volumes.

Instant Execution and Market Execution


There are 2 modes of execution of trade orders in the market — Instant Execution and Market Execution. Each system has its own advantages and disadvantages.

Despite the term "Instant Execution", orders are not executed instantly in this system. In practice, it has nothing to do with the speed of order execution. It would be more appropriate to say that Instant Execution is simply a method of processing orders. The speed of execution depends entirely on the broker himself and its dealing policy. A more appropriate name for the term would be "Exact Execution".

After all, if a broker works with this system, it promises to execute the order exactly at the price you have chosen, or not to execute it at all.

The market is volatile and fluid. After the trader clicks “Buy”, the broker starts processing the request and places the trade in the market. This process takes only a few seconds, but it can be enough for a significant change in price. If the price remains at the same level, the order is executed as usual. If the price has dropped, the order is executed at the original price, because this option gives the broker an additional earning opportunity, as it buys the asset at a lower price than that asked by the trader. If the price has risen, it is not profitable for the broker to buy assets at a higher price than that asked by the trader, so the order is rejected, and the trader receives a message about the price change—a requote.

Thus, with Instant Execution, a trade is executed only when the price remains the same or gets “worse” after the client clicks “Buy”. If the price increases, a requote occurs and the trade is canceled.


Advantages of Instant Execution:

Disadvantages of Instant Execution:

Market Execution is a system where an order will be opened regardless of any price fluctuations after clicking “Buy”. The trader does not know exactly at what price the purchase will be made. It can be either less or more than the desired one. In this case, there is no need to be afraid of requotes, but there is a possibility of a strong price hikes and, as a consequence, significant losses. Such a system is more suitable for trading when it is not the accuracy of the entry into the market that’s important, but its very fact.

#source


RELATED

Is CFD trading a better option in 2022/23?

It wasn’t so long ago that only the elite and wealthy had access to the global markets. Back then, a traditional trading account would require a deposit of at least...

How to Trade in Forex if You Already Have a Job

This article is devoted to an issue that has always been topical for many traders: how to combine trading and employment? What does one need it for, and what can help...

What is a central bank?

A central bank is a financial institution that manages the monetary policy and currency supply of a country or group of countries. It is typically responsible for maintaining...

A Comprehensive Guide On How To Trade USD/CAD Currency Pair

The USD/CAD currency pair represents the relationship between the US dollar and the Canadian dollar and is a favored choice among currency traders due to its active trading hours...

How to trade stocks with maximum outcome

Investing in stocks is an attractive way to become part of the world's best-known companies. However, not every investor knows how to trade stocks efficiently...

Why Trade Indices

Indices trading describes the buying and selling of a specific stock market index. An index shows the performance of a group of stocks. When the price of a group of stocks go up...

Top Trading Picks 2024: Mastering the Financial Markets for Optimal Success

As we step into 2024, the financial markets offer a kaleidoscope of opportunities for both novice and seasoned traders. With an overwhelming array of advice on financial planning and investment strategies...

How To Set Financial Goals In A Crisis

Clearly setting goals is an important step on the road to financial success. They, unlike abstract desires, will definitely work. At all times, you need to be serious and conscious about this question...

How Risk-Management Will Help Your Trading Career

In the financial world, nobody ever became successful without taking a few risks. Many would argue that the greater the risk taken, the greater the reward will be...

The Comprehensive Guide to Copy Trading

Copy trading, an innovative and adaptive strategy in the trading realm, offers participants the opportunity to emulate the trades of often more seasoned traders, all in real-time...

Best Currency Pairs to Trade and Live Happily Ever After

It is so easy to get confused in the world of financial volatility and numerous assets that the FX market offers for trading. We know what you feel. Often newbies...

How to place your first trade in Forex?

Forex is a unique financial platform. It gives traders an opportunity for both incredible profit and equally incredible loss. Thousands of people every day decide...

Embarking on ETF Trading: A Beginner's Guide

Entering the world of Exchange Traded Funds (ETFs) trading might appear daunting to newcomers, but it's a surprisingly accessible endeavor, thanks to the abundance of online resources and tools available today...

Guide to Account Security: Safeguarding Against and Addressing Scams

At forex-ratings.com, your security is of paramount importance to us. Our mission is to offer you a digital environment where you can invest, trade, and communicate confidently...

First steps of a trader. Where to start your Forex journey?

Welcome to the world of trading! You probably want to become more active in managing your finance and are now in doubts where to start. This article will guide...

The Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence (MACD) is a versatile and widely used technical indicator that offers insights into trends, momentum, and potential reversal points in the forex market...

A Guide to Demo Trading Accounts

Embarking on your trading journey is akin to stepping into a vast, dynamic universe with its own set of rules. Whether you aim to explore the realms of forex, delve into precious metals...

A brief article on Investing in Silver CFDs

Gold and Silver are precious metals that has been known to man since the olden days. Investing in Silver and Gold also dates back to prehistoric times...

The Dollar Index: What It Is, How It's Defined

Investors rely on a variety of tools in an attempt to determine the current and future state of the market. This set includes synthetic ones, such as stock indices...

Stocks: Top-5 of what you'll want to trade

If you look at the currency charts, they may seem chaotic most of the time. On any timeframe, be it long-term, mid-term, or short-term. The basic reason for that...

FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%
FXNovus information and reviews
FXNovus
75%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.