What Is An ECN Broker?

What Is An ECN Broker?

Posted on January 23, 2012 Admin

ECN brokers are the real source of quotes and trading as far as forex is concerned as unlike the market-maker brokers, they aren’t any real dealing-desks. Most of the brokers that you see in forex Industry are market-makers who accept your orders but do not process them further to the market or to the bank. In a way, market makers are a counter -party to your trade and their interest lies in trading against your order which is not the case with ECN’s.

ECN, a better and a more transparent system is electronic communications network (ECN) that brings all the banks and major investing institutions in forex to the party. An ECN broker only connects people in the marketplace and lets them trade against each other. All the orders are processed straight to the bank with no exceptions, so they don’t have any real interest in cheating their clients or in trading against them. With transparency being paramount, there are a couple of other important features that make ECN brokers a preferred mode of trading but let me mention before-hand that ECN brokers are not meant for any small trading activities. To be able to avail of ECN broker facilities, you must have a significantly large amount in your account as the Lot sizes with ECN run only in Standard lots and not any Nano or a micro lot. Similarly, the leverage available is very low, hence requiring huge margin-money on each trade-order which may not be available with most of the traders, not with 99% of them at-least.

Coming to ease of operation and the cost of trading, it definitely is cheaper to trade with an ECN broker. ECN brokers (courtesy its network connectivity) can find you the cheapest spreads in the market which can be as low as zero sometimes. They charge you some commission besides the spread which is not charged by market-makers but in-spite of that, the cost of placing your orders is lesser here than conventional spread-based trading. That also suggests that the spreads with an ECN broker are not fixed and keep changing as the market grows, taking all the demand and supply into consideration.

As all the profits and losses are paid directly by the bank, the ECN brokers do not have any interest in cheating their clients with re-quotes, unauthorized trades and stop-loss hunting. The ECN broker’s only interest is in the commission and the spreads. They are also paid nice incentives by the banks on cumulated monthly transactions by all their traders, so more trading means more profits for them. Another unique advantage to being with an ECN broker is that an ECN can accommodate all kinds of trading style including even scalping. So whether you are a day trader or a swing trader, an ECN broker will always have a room for you unlike market-makers who do not prefer scalpers and profit- makers.

However, leaving the disadvantages aside, the ECN brokers are fairly transparent in their operations. The money deposited with them is straight processed to the banks and not used for meeting the broker company expenses, hence keeping your money safe. Even if the broker was to go bankrupt after sometime, your money is held safe in the custody of the bank. Another major advantage is that ECN brokers accept bank guarantees, so there need not be any physical transfer of money from your bank account to the broker. This is useful for offshore-trading as your bank can simply issue an undertaking guarantee which you can send to the brokers and then they can give you a ready account, duly funded, ready to trade.

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