When you are learning to trade forex one of the first decisions you have to make is which broker to use and indeed which type of broker to start with.
The forex market is an unregulated market or OTC (over the counter) market which does not trade on a formal exchange like commodities or stocks and shares do, This means that at any particular time there is no absolute correct price for any currency pair and the prices you get from one broker might be different from those that you get from another broker. This in itself can provide trading opportunities.
There are mainly two types of brokers. Market makers and ECN (electronic communications network) brokers.
Market-makers do exactly that – they make and quote their own market prices. When you buy they personally sell to you and when you sell they personally buy from you. The market-maker is therefore your counter party. They make both the buying price and the selling price and it is for this reason that they can keep a fixed spread and not re-quote because they are in control of both prices. Whilst It is true that on occasion they do try to hedge your order by passing it on to another party in reality much of the time they do not do this and they simply take the other side of the trade so you are effectively trading against them. This obviously is not an ideal situation as there is a clear conflict of interest between the broker and the trader. The other side of the coin is that market-makers tend to give you free platforms, free data feeds, free demo accounts, allow you to trade very small lot sizes, never re-quote, do not charge commissions etc
ECN brokers pass on the prices quoted from banks, market makers, and other traders in the electronic communication network and then display the best prices based on these quotes. They charge a fixed commission on each transaction in the same way as a conventional stockbroker would. Because the ECN broker is not in control of the bid and ask prices you will occasionally get re-quotes. Also as in theory they pass your order on to a bank or other participant in the ECN network you may have to trade bigger lot sizes (ie no micro mini contracts etc) .
It is for this reason that very often novice traders have to start by using a market-maker and then as their trading progresses perhaps move to ECN brokers. This would be my own advice to novice traders i.e. initially start using a market-maker because of the many advantages they provide for the small trader but as your trading progresses move to an ECN broker and also into markets other than forex.