The advent of technology has made it possible for traders to invest in the financial markets safely and efficiently, just like prominent financial institutions. One such facility is ECN (Electronic Communication Network) which is basically a computerized system that automatically buys and sells orders with market securities. Read More
In simple words, an ECN broker offers its clients direct access to the market participants via interbank trading systems so that the buyers and sellers can find counterparties with respect to their trading positions, however, without involving any middlemen. You can consider it just like an exchange where the clients enter bids into the system as well as can communicate with other major market players to get the best price for executing the trades. Hence, the best benefit of working with an ECN broker is they make trading quick and efficient. In addition to this, they tend to expand the geographical scope of the market players.
However, before going into ECN brokers in-depth, let’s take a glance at various forex trading broker types that you can find in the market today.
Market Makers, ECN And STP Brokers
Just like the name suggests, market makers are the ones who actually make the market. A market maker fixes the bid and ask prices on his system, which are then displayed on the platform for traders so that they can trade efficiently. Moreover, he never hedges a trader’s position with liquidity providers. Hence, they have to pay winning customers from their own pocket. They are always on the opposite side of the clients’ trade. If they win, the client loses and vice versa. Thus, market makers’ interests are never aligned with a trader’s interests.
Forex brokers who aren’t market makers are either ECN or STP (Straight Through Processing) brokers. They both collectively are referred to as “non dealing-desk brokers. Out of the two of them, ECN brokers are preferable because they never resort to price manipulation and slippage methods. They directly source prices from a pool of liquidity providers, which comprises banks, financial institutions and hedge funds. The best thing about ECN brokers is that they provide clients with the best possible spreads. Check further detailes about ECN broker by the reading the best forex brokers review.
Opening an account with ECN brokers requires minimum capital. A significant feature of ECN brokers is that they offer tighter spreads, which can be as low as 0.0 pips.
What Are The Advantages Of Dealing With A True ECN Broker?
The word “true” has great significance here because you can find many brokers in the market who claim to be ECN brokers but actually follow the STP trading model. They never mark up their spreads, and hence if the broker’s website mentions a dealing desk, it means they aren’t a true ECN broker and pretending to be one.
Here Are The Merits Of Working With An ECN Broker
- They offer advanced communication technology, such as FIX protocol, that helps them source the most efficient prices from the liquidity providers and deliver orders to them for further execution.
- ECN brokers have great networks to access, which are very much efficient for forex trading, even for after-hours trading. This offers traders flexibility who are not able to trade during normal trading session timings.
- With ECN brokers, trades can be executed instantly as the prices are streamed live, and the final prices are confirmed immediately.
- ECN brokers have a high execution speed, which makes them a perfect choice for EAs and algorithmic trading.
- You can find certain ECN brokers in the market who specifically work to help small traders access the best prices and spreads, just as institutional investors can.
- The spreads offered by ECN brokers are tighter than those provided by other standard brokers.
- ECN brokers have no requotes and slippage. Additionally, they work with maximum efficiency and transparency.
- ECN brokers charge less commission and fee. Also, they provide more time to their clients for trading.
- ECN brokers charge a fixed commission per trade.
- All the ECN brokers have access to the same prices at any point in time.
- ECN brokers provide all the historical and current data to the participants. This helps in market research and analysis and minimizes manipulation of prices at all costs.
- With ECN brokers, traders can trade on neutral prices based on real market conditions.
- Traders have an option to use their own personal trading methods and risk management strategies with ECN systems to access a wide range of data for their own benefit.