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Is XM An ECN Broker? or Market Market? Review broker?
Is XM an ECN Broker or Market Maker? Broker Review
When choosing a forex broker, one of the key factors traders must consider is the type of broker they are dealing with. A broker's model plays a crucial role in your trading experience, affecting the execution speed, spreads, and overall costs of trading. In this article, we will discuss whether XM is an ECN broker or a market maker, providing you with a detailed broker review to help you make an informed decision.
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Understanding the Key Concepts: ECN Broker vs. Market Maker
Before we dive into the specifics of XM, it's essential to understand the difference between an ECN broker and a market maker.
ECN Broker
An ECN (Electronic Communication Network) broker is one that provides direct access to the interbank market, allowing traders to interact with liquidity providers, such as banks and financial institutions. The key features of an ECN broker include:
No Dealing Desk (NDD): ECN brokers offer direct market access (DMA), meaning they do not interfere with the execution of orders. They pass client orders straight to the interbank market or liquidity providers.
Tighter Spreads: Since ECN brokers connect traders directly to the market, the spreads tend to be tighter, particularly during times of high liquidity.
Transparency: ECN brokers offer full transparency in the pricing and order execution process, which means that the price you see is the price you get.
Commission-based Fees: Instead of marking up spreads, ECN brokers charge a commission on each trade.
Market Maker
A market maker, on the other hand, is a type of broker that creates a market for their clients. Market makers provide liquidity by quoting both buy and sell prices for the currency pairs they offer. Key features of market makers include:
Dealing Desk (DD): Market makers use a dealing desk to handle orders. The broker may take the other side of the trade, meaning that if a client buys a currency pair, the broker may sell it to them, and vice versa.
Wider Spreads: Since market makers quote prices and provide liquidity, the spreads can be wider compared to ECN brokers, especially during periods of low market activity.
Potential Conflict of Interest: Market makers may benefit if their clients lose money, as they often take the opposite side of the trade. This can sometimes lead to conflicts of interest.
No Commission: Instead of charging a commission, market makers typically make money through the spread.
Now that we have a clear understanding of these two types of brokers, let’s take a closer look at XM.
What is XM?
XM is a well-known forex and CFD broker that has gained significant popularity among traders worldwide. Founded in 2009, XM offers a wide range of trading instruments, including forex pairs, commodities, indices, stocks, and cryptocurrencies. The broker is regulated by several financial authorities, including the Cyprus Securities and Exchange Commission (CySEC), the Australian Securities and Investments Commission (ASIC), and the Financial Services Authority (FSA) of Belize, making it a trustworthy choice for many traders.
XM provides several account types, including Micro, Standard, and XM Zero accounts, with varying spreads and trading conditions. The platform supports popular trading platforms such as MetaTrader 4 (MT4) and MetaTrader 5 (MT5), and offers various funding and withdrawal options.
Is XM an ECN Broker or Market Maker?
XM’s Business Model
XM is often categorized as a market maker broker rather than an ECN broker. Here’s why:
Market Maker Structure: XM operates with a dealing desk, which means that it is a market maker broker. When you place an order, XM may take the opposite side of your trade, especially if the trade is not matched by a counterparty. This setup is characteristic of market makers.
Wide Spreads: XM’s spreads, especially on its standard accounts, can be wider compared to ECN brokers. The broker offers competitive spreads, but they are generally not as tight as those offered by true ECN brokers, particularly during times of high volatility.
No Direct Access to the Interbank Market: Unlike ECN brokers that provide direct access to the interbank market, XM does not offer this service. Orders are executed within its internal system, and the liquidity providers for the broker are typically selected by the company itself.
Commission-Free Trading: XM does not charge a commission on its standard accounts, which is another hallmark of market makers. In contrast, ECN brokers typically charge a commission on each trade to cover the cost of facilitating direct market access.
Customer Support and Order Execution: As a market maker, XM offers fast order execution, especially with its proprietary trading platforms, and provides solid customer support. However, the absence of direct market access and the reliance on a dealing desk are key characteristics that differentiate it from an ECN broker.
XM Zero Account – ECN-Like Features
While XM is fundamentally a market maker broker, it does offer an account type known as the XM Zero Account, which is designed to provide tighter spreads and lower commissions, mimicking some of the features of an ECN account.
The XM Zero Account offers:
Tighter Spreads: With the XM Zero account, traders can access spreads starting as low as 0 pips, which is similar to what is typically offered by ECN brokers.
Commission: There is a commission of $3.5 per side for each lot traded on the XM Zero Account, which aligns with the commission structure of many ECN brokers.
Direct Market Access: While it’s not a pure ECN account, the XM Zero Account provides traders with more competitive conditions, especially for those looking for tighter spreads.
Even though the XM Zero Account offers some ECN-like features, the overall execution model remains more in line with market-making practices. Traders should be aware of this distinction when choosing the appropriate account type for their needs.
Advantages of Trading with XM
Despite being primarily a market maker broker, XM offers several advantages that make it a popular choice among traders:
1. Wide Range of Instruments
XM provides access to a vast array of trading instruments, including forex, stocks, commodities, and cryptocurrencies. With over 1,000 different assets to trade, traders have the flexibility to diversify their portfolios and explore various markets.
2. User-Friendly Trading Platforms
XM supports both MetaTrader 4 (MT4) and MetaTrader 5 (MT5), which are two of the most popular trading platforms globally. These platforms are user-friendly and provide a range of features, including advanced charting tools, automated trading capabilities, and various order types.
3. Regulated Broker
XM is regulated by several well-known financial authorities, such as CySEC, ASIC, and FSA. This regulatory oversight ensures that XM operates under strict guidelines and offers a high level of security for traders’ funds.
4. Educational Resources
XM offers a range of educational resources for both beginner and experienced traders. These include webinars, video tutorials, eBooks, and daily market analysis, which can help traders improve their skills and knowledge.
5. Low Minimum Deposit
XM offers a very low minimum deposit requirement, especially for its Micro account. This makes it accessible to traders with limited capital who want to start trading in the forex market.
6. Excellent Customer Support
XM provides 24/5 customer support through live chat, email, and phone. The support team is knowledgeable and responsive, helping traders resolve any issues promptly.
Disadvantages of Trading with XM
While XM offers several benefits, there are some disadvantages to be aware of:
1. Market Maker Model
As mentioned earlier, XM primarily operates as a market maker, which can lead to some potential conflicts of interest, especially for traders who are looking for direct market access and tighter spreads.
2. Wider Spreads on Standard Accounts
The spreads on XM’s standard accounts can be wider compared to those offered by true ECN brokers, particularly during times of low liquidity. Traders who prioritize tight spreads may prefer an ECN broker.
3. Withdrawal Fees
Although XM offers a range of funding and withdrawal options, there can be fees associated with certain withdrawal methods. These fees may vary depending on the payment provider and the country of residence.
Final Thoughts: Is XM Right for You?
Whether XM is the right broker for you depends on your trading preferences and goals. If you are looking for direct market access, tighter spreads, and commission-based trading, you may want to consider an ECN broker. However, if you are new to trading or prefer a broker that offers a wide range of instruments, a user-friendly platform, and educational resources, XM can be a solid choice.
In conclusion, XM is primarily a market maker broker, although it offers some ECN-like features with its XM Zero Account. Understanding the broker’s structure, spreads, and account options will help you decide if XM aligns with your trading style and needs.
By carefully considering all the aspects discussed in this review, you can make an informed decision and determine whether XM is the best broker for your trading journey.
