ECN Broker: Definition, How It Works, Benefits, and Downsides

ECN, which stands for Electronic Communication Network, really is the way of the future for the Foreign Exchange Markets. ECN can best be described as a bridge linking smaller market participants with its liquidity providers through a FOREX ECN Broker. Electronic communication network (ECN) fees are applied on a per-trade basis, usually fractions of a cent. ECNs charge a service fee for matching buyers and sellers who trade on their exchange and networks. An electronic communication network (ECN) is a computerized system that automatically matches buy and sell orders for securities in the market. ECN trading is especially helpful when investors in different geographic areas wish to complete a secure transaction without the use of a third party.

ECN brokers are financial experts that use their sophisticated electronic networks to link their clients with other market participants. Consolidating quotes from different participants, ECN brokers are able to offer tighter bid/ask spreads. In summary, a forex ECN broker uses the MT4 or MT5 trading platforms, and manages ECN trading as a ‘hub’, where all the major market players act as a liquidity source. The broker uses this network to provide its clients with direct access to other participants in the market. The term market makers refers to high-volume traders that literally «make a market» for securities by always standing at the ready to buy or sell. Unlike ECNs, market makers profit on the bid-ask spread rather than through commissions and fees.

Dealing Desk vs. No Dealing Desk

With increased transparency and no conflict of interest, ECN brokers like MultiBank are the most reliable and safe way to trade. An ECN broker is only the intermediary between your buying and selling orders, matching you up with different market participants. As this market is not centralized, you’ll quickly realize that you can access different exchange rates and trading conditions, depending on the broker you use. Order Restrictions -Your order limit refers to the number of orders, maximum transaction volume, and total position size that you can send to the broker.

You should also check the trading fees and commissions and whether you are allowed to start with a demo account. This will give you time to practice and get familiar with the platform, whether you are using MetaTrader 4 (MT4), MetaTrader 5 (MT5), cTrader or another. Brokers offer different platforms so it’s important to use one you feel comfortable with. Kwakol Markets offers a wider range of forex pairs than most competitors, with 90+ assets available. Users get fast execution speeds through the ECN model and competitive spreads.

The evolution of trading technologies as exemplified by the TickTrader Trading Platform

One of the biggest drawbacks to using an ECN is the price to pay for using it. Typically, the fees and commissions for using an ECN are higher as compared to non-ECN systems. Per-trade-based commissions can be costly and can affect a trader’s bottom line and profitability. Working with brokers of this nature often results in lower fees as well as additional trading time availability because of how the ECN functions.

ECN trading is trading through an ECN (electronic communications network) broker. ECN brokers offer pure order-matching execution systems, where the broker charges a premium as commission per trade instead of artificially inflating the raw spread which occurs naturally within the order-matching process. The cost of ECN trading tends to be cheaper above a certain trading volume. Much will depend upon the quality of the service and the liquidity of markets traded.

Examples of ECNs

The orders are filled at the best available prices with no dealer intervention. An ECN broker does not hold a position in the market, meaning they will never take a position against you. They pass their clients’ orders straight to their liquidity providers without intervening with a Dealing Desk.

We at Soft-FX are ready to prove it to you by the example of our products and solutions. Milton Prime offers an extensive range of smart, user-friendly products, services and trading tools that appeal to the pros and empower new traders to enter the online trading arena. When I trade with a Dealing Desk broker, the broker decides the price and spread, meaning I trade the broker’s specific prices.

Technology and expertise for your money to work smarter.

Using an ECN broker has several advantages; in fact, a large number of traders are looking forward to ECN brokers, and for a viable reason. ECN brokers offer a range of major benefits, which may help them get ahead of their leading counterparts. As opposed to the Market Makers, the Electronic Communication Network (ECN) brokers do not make a profit on spread difference, but charge a commission on positions instead. As a result, their clients’ win is their own win or else they wouldn’t be able to make any profits. Due to its decentralized status, choosing the right broker could mean the difference between success and failure in your Forex trading endeavour. While there exist many brokers in the market offering similar products and services, you must be able to identify the different kinds of brokers before embarking on Forex trading.

Nevertheless, the model has some unconditional advantages which attract a certain category of market players. As an example of a solution that includes both of these components, we can consider the TickTrader Liquidity Aggregator. Except for internalization, it enables connectivity with an unlimited number of liquidity providers, thus providing full ECN/STP functionality. While using ECN best execution, investors are able to trade outside the traditional trading hours, which makes it very flexible.

What are the advantages of ECN brokers over STP brokers?

Electronic Communication Network Execution in Forex trading gives investors in different regions the ability to quickly trade with each other. The main idea behind ECN is to get rid of the role of the third party in executing orders. It is also known for providing traders a high level of privacy which is considered a huge advantage of ECN trading. Choosing between No Dealing Desk and Dealing Desk brokers is one factor that traders should weigh against other criteria, such as levels of customer service and regulation.

• As noted in the guide to what is ECN, one of the biggest advantages of ECN brokers is the fact that they aggregate (combine) lots of liquidity providers and their price quotes.
• For example, RoboForex cannot accept traders in the USA, Japan, Canada and Australia, despite being a top ECN broker.
• Except for internalization, it enables connectivity with an unlimited number of liquidity providers, thus providing full ECN/STP functionality.
• Furthermore, the minimum deposit required to open an account with an ECN broker is typically higher than a standard brokerage account, possibly limiting accessibility for retail traders with lower investment capital.
• Although there are many different brokers in the industry, given the advantages of ECN brokers, they may be the best choice that meets your overall trading needs.