When you’re looking to trade Forex, you should choose the right broker first. Not all brokers are created equal, and not all offer the same benefits.
In this article, we are going to talk about one of the broker types – ECN broker and the benefits of trading with it in the Forex market. So, if you’re still searching, keep reading and exploring one of the leading broker types.
Who are ECN Brokers and what do they do?
Let’s start with the ECN abbreviation. ECN means an Electronic communication network, and that type of broker uses it to match buying and selling orders in the currency exchange market. The ECN is a computerized system that helps buyers and sellers in the forex market match up their orders.
ECN brokers are brokerages that can only match deals made by other market players and cannot start trading against the customer. ECN spreads are often much smaller than those offered by traditional brokers, but users still have to pay a commission for each transaction. An ECN enables investors to buy and sell beyond the typical trading hours, offering a tool for individuals who want more convenience.
They are considered non-dealing desk brokers, which means they don’t send order flow to market makers. Instead, they connect traders and route orders directly to liquidity providers.
Advantages and disadvantages
Let’s go through some pros and cons of the broker:
- variable spreads
Traders can get access to market prices through an ECN agent and a dedicated account. The prices vary according to supply, demand, instability, and other market conditions. This makes it possible for traders to trade on very low bid/offer spreads through the right ECN broker.
ECN brokers keep their operations confidential to protect themselves and their clients.
- instant trade execution
ECN brokers offer efficient trade performance and use a different method that doesn’t require clients to trade with the broker. This allows for improved trade execution.
- high deposits
ECN brokers offer direct communications between traders and liquidity providers. This means that they have high service prices and demand larger initial deposits to open the account.
- fixed commissions
FX ECN brokers usually do not take any money for providing their services. Instead, they have fixed commissions and fees for every transaction. And usually, these commissions are quite high.
- no micro-lots
the absence of micro-lots is connected with high service costs and requirements from liquidity providers.
ECN vs Dealing Desk Brokers: Which one is better?
Both broker types have their pros and cons, and the right choice for you will depend on your trading style and goals.
ECN brokers offer a direct connection between buyers and sellers, making them a better choice than dealing desk brokers. In contrast, dealing desk brokers execute trades by either taking the opposite side of the trade themselves or passing on the order to a market maker.
Dealing desk brokers are often criticized because they may have a conflict of interest if they trade against their clients, and also because passing orders on to market makers can result in slower order execution. On the other hand, they are typically less expensive to trade with.
There is no certain answer to which broker is better – if you are a high-frequency trader, then opening an ECN account is likely your best bet. But if you’re a casual trader who doesn’t trade often, then a dealing desk broker might be a better option. Ultimately, it’s up to you to decide which type of broker is best for your needs.
To wrap it up, a true ECN Forex broker can provide a number of benefits for traders. These benefits include low spreads, fast execution, and the ability to trade with other market participants.
With the help of an ECN broker, traders can work their way towards success in the Forex markets.