ECN Brokers How Does Forex Trading through ECN Work?

When you trade forex using ECN, you buy and sell directly from the connected network of banks and financial institutions, and they provide you the liquidity. Many forex traders prefer ECN routing over another popular forex routing model, called market maker. The main reason is that by using an ECN broker, clients essentially trade on the interbank market instead of making transactions with their own brokers.

• Let us compare the grocery market with the foreign exchange market.
• Alternatively, check out the Best ECN brokers toplist compiled by our team of financial experts.
• When specific order information is not available, it provides prices reflecting the highest bid and lowest ask listed on the open market.
• Also, many brokers enable you to deposit a specific sum of money, but others demand a preliminary investment before processing any trades.
• Most brokers tend to focus on either being an STP ECN or market maker type of operation, but in many cases, the larger brokers, like FXPro.com, offer both service types.
• This means that they prefer traders who are profitable and active in trading, as these traders achieve larger trading volumes.

ECN trading means trading through an electronic communication network. Traders buy and sell directly to each other without any intermediaries. Liquidity providers offer ECN trading services giving their clients direct access to the network and charging a commission as a premium. Moreover, it offers the best possible trading conditions by routing their clients’ orders to various liquidity providers.

ECN Brokers vs. Dealing Desk Brokers

Of course, these are not all the differences between these types of accounts, but I believe this is enough to appreciate the difference between these two best systems. Depth of Market displays not only prices, but also the volumes of each order of all trading participants. It differs from STP in that the client’s order is not directly displayed on the interbank market, where all system participants can see it, and, having estimated the volume, decide on execution. ECN networks can also be called a huge general database of customer requests, where similar (compensated) orders can be executed automatically, without the broker’s involvement. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. This article represents the opinion of the Companies operating under the FXOpen brand only.

As long as the system monitors the maintenance of liquidity, it encourages everyone who adds this liquidity and charges those who take this liquidity from the market. As you see, the spread for EURUSD trades here is not just a minimum; there is no spread at all at the moment. The above screenshot displays the execution speed of my broker, LiteFinance, where the MetaTrader 4 platform is used for applying various trading strategies. As you see, the speed on the server nearest to my location is 36.55 ms, which is quite good. The minimum lot, as a rule, is strictly regulated, and most often, at least 0.1 lot is provided. Perhaps the best way to describe an ECN broker is by stating what it is not.

Market Makers in Forex. How do you trade like a market maker?

GO Markets, Exness, and XM are some of the most popular platforms. A trader may enter an order to buy or sell at the current market price, but instead of having his or her order instantly filled, they are presented with a requote at a new market price. Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal. Once you’ve selected a broker and are willing to put your own money at risk, be very careful.

“One of the potential disadvantages of ECN trading is market fragmentation,” Fink says. “Because ECNs match buyers and sellers within their systems, there is the risk of insular trading,” which can cause the prices on an ECN to deviate from those in the broader market. Without market makers and ECNs, it would take considerably longer for buyers and sellers to be matched with one another. This would reduce liquidity, making it more difficult to enter or exit positions and adding to the costs and risks of trading. Automatic Data Feed – Clients may access and interact with professional advisers, trade systems, and operational risk management via the automated live data stream with ECN trading. The market dataset includes accessible ask prices and competing offers at any time.

Position trading: definitions, pros and cons. Examples of position trading strategies

We’ll be providing you with some great ECN brokers to consider, as well as a number of other types of broker. There’s stiff competition among brokerage houses to attract more retail traders. But the true value of a broker sits with the efforts made to retain its customers. The ECN account definition stands for the best market conditions available to retail Forex traders.

Using top live prices and instant approvals of ECNs, the marketplace helps meet this need. As a result of ECN trading, no price maker interference is possible, as all transactions are immediately verified as they are processed. An ECN broker could only match deals made by other market players and cannot start trading against the customer. ECN spreads are frequently smaller than those used by traditional brokers, although users are still charged a set commission for each transaction. The principle of this form of trading is clear and straightforward. You give your broker an order to enter a trade on the instrument you are interested in.

What Is the Difference Between Straight-Through Processing (STP) and ECN?

ECN brokers are non-dealing desk brokers, which means they do not forward order flow to market makers. Alternatively, they digitally connect trading counterparties and route orders to liquidity providers. The Market Execution order execution type in the Electronic Communications Networks system eliminates any delays. When working with the very first electronic brokers, the terminal often processed your order for several seconds, after which it reported that the market price had changed and the deal could not be executed.

In order to function legitimately, ECN brokers must always be regulated by a governmental organization. This assures that they have met specific requirements and are subject to continuing supervision. The good news is that there aren’t many disadvantages to trading in the Forex market using an ECN broker. However, nothing is ideal, and there are a couple of downsides worth mentioning.

ECN Trading FAQs

In order to summarize what I said, I once again focus on the benefits that traders can get when working with such a broker. This processing method implies a direct transfer of your order to different liquidity providers that are partners of your broker. The more direct partners your broker has, the better the final execution price of your order will be. An ECN broker retains the customers by offering the best available market conditions at present. Furthermore, it never trades against the trader, for the simple reason that the business model doesn’t allow it to. Therefore, the ECN broker has a strong interest that the retail traders survive in the market and are profitable in the long run.