Also, you’re not going to have any trades stop-hunted. ECN providers talk a lot about the transparency of their set-ups – and it is true, you’ve got more control over where your money is going.

Disadvantages
Maximum leverages offered tend to be around 1:33, 1:50 – so you need some capital behind you. You won’t get 1:100 leverage with a ECN deal, let alone 1:400. (Yes, maybe this should be under avantages…)
With ECNs you tend to be trading in 1 lot minima – and, usually, a minimum account margin somewhere around $10,000.

During certain market conditions, liquidity can be a problem. Available trades tend to slip away at news time, simply because the feasible spreads are getting too wide (much the same, in practice, as the standard forex broker).

They’re for longer-term action, in general – definitely not for you if you’re into the cut-and-thrust of scalping off the 5-minute charts and relatively small lots.

And lastly, there’s a commission to be paid to the ECN on every trade.

Conclusion
Maybe it’s just me and I don’t move in the right circles any more, but ECNs seem less popular than they were a couple of years ago, with fewer standard traders making the jump up to their sort of level. This might even mean that the average retail forex dealer is getting their act together… or maybe not.

There’s quite a few people who trade on the retail forex market every day, who watch their charts go up and down, click on their trades, but only have the very vaguest idea of what’s happening in the big wide world out there. Here’s the very simple version – how the retail forex market works in relation to the world of the big players, banks, institutions, the people we love…

Two quick points to clarify first (which you may well know already).

1. Watching pairs go up and down – you aren’t seeing ‘the forex market’ – you’re seeing your chosen broker’s version of that market. Which is a completely different thing.
2. Liquidity. If you buy something, there must be someone willing and able to sell you it first – the stuff has to a) exist and b) be owned, even if it is a fairly notional ownership at times. Otherwise, no forex deal.

The Interbank Level
The top level of the fx market is known as the Interbank level. It’s not a centralised exchange, in the same way as stocks usually will have an exchange, with intermediate brokers entering the market on behalf of clients – the Interbank level is essentially a collection of bids and offers existing at any one time in order to make potential currency transactions.

So how do they know? How do they communicate?

EBS/ICAP & Reuters
The Interbank market is held together, mainly, by 2 large communication systems, Electronic Broking Services (EBS) currently owned by ICAP, and the snappily-named Reuters Dealing 3000 Spot Matching (also known as Reuters D2).

EBS is used predominantly for the various EUR, USD, JPY and CHF crosses, while Reuters D2 concentrates on the GBP, and commonwealth currencies AUD, NZD crosses – it’s just the way they work.

With these systems, a participating bank can see the immediate, spot, prices that other Interbank members are prepared to make transactions on.

The Internal Level
The next level of the market exists within each bank – given the supply and demand for individual currencies, they’ll juggle balances around, between branches say, between accounts in currencies other than their home currency (whatever that happens to be), and over-the-counter. Transact business with a bank in this way, and you just have take or leave what they offer in terms of a deal.

A few US citizens, just a few, don’t get out and about very often, and might find it amusing to get on down to their local mainstreet bank and ask about changing some currency – and when you find out the commission + spread they operate on over the counter, will probably feel a bit happier about 4 pip spreads…

Retail Forex market
And this is where the retail forex market comes in. Your online broker, whoever they are, will have a deal set up with one of the Interbank players (usually it’s only one, occasionally more). What the online forex broker (strictly, they’re forex dealers) needs is immediate liquidity to cushion moves either way and keep their overall position under some kind of control. Ultimately, the bank will be hedging these positions built up via EBS.

The brokers aren’t getting the same deal as if they were on the Interbank level directly, but they’re getting something closer to it. They will, firstly, match up their internal orders from us guys – one says buy, another says sell, and the broker must collect on the spread – then, secondly, if things get too far out of balance, the broker has access to their liquidity provider to secure any overexposure in the position.

So essentially, although going down through the various tiers the transaction terms get worse, flexibility does increase – allowing us smaller guys and gals to trade without commission, in nonstandard lot sizes and higher leverage than otherwise possible (if you think this last is a good thing)…

There’s another twist to the spot forex market – dealing via Electronic Communications Networks, or ECNs, which we’ll look at shortly.

About HY Markets
Live prices, Dow Jones news, market information and calendars, advanced charting systems, and technical analysis tools to give you a competitive edge. The online trading platform is supported by a promise of 24 hr live support via telephone, email or chat.

The demo platform is a branded MQL4, see the screenshots – it does all expected of it. If you’ve got experience with MetaTrader, the practice account shouldn’t give you any problems at all. Demo trades, with immediate execution and pending orders, went through without difficulty, and again, did all they were supposed to.

Other products
As is rapidly becoming the fashion, commodities can be traded from the same account, such as oil/gas and precious metals. Gold might be worth a look at the moment, in these nice volatile times. For myself, I’ve been investing gold a lot longer than I’ve been trading in forex, but with the emphasis on long-term.

Bonuses for New Accounts
You want bonuses as well? As a special offer up to the end of February, with a deposit of $5,000 or above in a Mini account you can get a $500 bonus trading credit. This rises for a Standard account to a bonus of $2,000 on a $20k deposit, and for a Premium account to a bonus of $5,00 on a $50k deposit.

Subject to the usual conditions, that there’s a minimum turnover in the first month and the bonus is a trading credit only – so you do get to keep profits made on this capital.

So why not give it a go – register with HYMarkets here. And you’ve got any feedback on performance, do let us know..

Company Information & Regulation
HY Markets has its headquarters in London UK and is authorised and regulated by the Financial Services Authority (FSA) – FSA license no: 186171 – none of this talking to you from a small Atlantic or Mediterranean island, if you feel like withdrawing some money from your account And they’ll take you worldwide – none of this US and Canada residents not allowed…

Note:
A forex demo account won’t (cannot) necessarily have the function and performance as a real trading account – factors such as execution time and offered spreads may well differ, sometimes significantly.

Some sites offer services to US residents only, some are for EU residents only, others are open to all – nothing to do with the trading, it depends how they operate in their local jurisdiction and how they are regulated.

1. It’s kinda obvious, but maybe stay well away from non-regulated forex brokers…

2. It’s also kinda obvious, but among brokers registered with a regulatory body, look for those with a clean regulatory record.

You can, if you want to have a go, search around for the financials of a given company. There’s information and opinion available from a variety of web sources. But then Enron showed a clean set of financials to the world for quite a long time…

This route is still tricky though – who knows who owns what? – and this can get get very tangled. Those with slightly longer memories will have the example of FXCM, Forex Capital Markets, in mind. In late 2005 Refco, a commodities brokerage got involved in a false accounting investigation, which sent the company down the drain – trouble was Refco owned about 35% of FXCM at the time, which lead to considerable fallout. The lawsuits are still going on, probably only just getting into their stride…

Last point, for now – it’s called “regulation”, as if it’s a constant process. Not really so, I’m afraid. Problems still tend to be tackled retrospectively, and it might suggested that this is the only way of doing it. The examples of light-touch regulation failing across all markets have been much in the news recently, so we’re probably in for a period of good behavior for a while – then things will start to slip…

Best advice? If you’re with a big forex broker, you won’t be alone – you’ll have other small investors around you, and the combined leverage of these – whatever that counts for…

We’re going to look at the various regulatory bodies – NFA, FSA – in more detail shortly.

If you’re a day trader, closing trades before your broker’s daily cutoff time, this problem isn’t going to arise, but occasionally there are forex systems and stategies that could benefit from this approach.

Some long-term traders will also look towards no swap interest accounts such as these for trades on pairs that have a high negative rate. (Swap interest? Rollover charges? more information here: forex swap interest).

In the past few years, the Yen carry trade, with the Japanese central bank interest rate at around 0.5% has been a viable strategy (less so now…) – but if you’re looking at trade in which you’re buying yen, this remains disadvantageous, and here the no-interest account could have an application.

But again – a lot of the forex brokers offering Islamic, or ‘no-interest’ accounts levy a daily commission in the small print – and, this being the real world – this can be more than the swap charges in the first place… So, some caution here…

If it’s not for religious reasons, best to avoid the no-interest forex account.

Credit card security
Most forex brokers will accept deposits by credit card, wire transfer and, in some cases, checks by good old snail mail. However many forex traders share the view about the use of their credit card online and the possibility of endangering their saving account.

Online payment methods
In recent years, depositing and withdrawing money from your forex broker with online payment methods such as Paypal, Moneybookers, Neteller, e-bullion and others has become much more widespread. This is because the money can be transferred immediately (and securely) to and from your forex broker. All of these payment options used by forex brokers may well offer better protection for your money than would be the case with any other transaction method. Most forex traders place a greater trust in these online payment systems and will prefer making use of them to that of a credit card.

Do bear in mind that while a broker may accept a deposit via one of these payment methods, there’s a few (of the smaller) brokers that won’t make payment by the same method – they’ll quote something along the lines of internet security, real or imaginary – so this is always something to check on first…

Check the small print
As we know only too well, each and every forex broker has subtly different policies, terms and conditions. Many brokers will permit you to withdraw profits via the same payment method you used to deposit, but occasionally you won’t be able to make a withdrawal until a fixed amount of money is reached and or bonus requirements are fulfilled. Also, while most forex brokers do not levy any extra fees – the bid/ask spread ought to be enough, really – it’s not unknown for some brokers to charge transaction fees on withdrawals.

Always read the terms and conditions of your selected broker before you make a deposit. The first place to check is the Frequently Asked Questions on the broker’s web site – if you can’t find full details there, then it does become a case of going through the fine detail in the terms & conditions, not always a rewarding experience…

And if you’re still not totally sure, then definitely contact your forex broker via email, online chat or telephone (remember, the quality of support services can vary before and after you’ve put your money with them..)

You’ll need the answers to these questions:

1. What are the available payment methods?
2. Transaction fees? If so, how much and depending on what?
3. What is the withdrawal process?
4. How long will it take to receive the money in your account?
5. What is the minimum amount required to make withdrawal?