Brokers by Type
ECN Brokers: What They Are and How They Benefit Traders
ECN (Electronic Communications Network) brokers offer a trading technology that eliminates intermediaries from the trading process. This means that traders connect directly with each other or with top-tier brokers, bypassing traditional intermediaries.
Here are six advantages of using ECN brokers:
- Reduced trading costs.
- Fast order execution.
- Support for 24/7 trading.
- High number of trading participants, ensuring deep liquidity.
- Timely access to price movement information and market depth.
- Transparency, as all orders are visible in the system, minimizing manipulation risks.
ECN trading is reliable, secure, and anonymous. All orders passing through an ECN are consolidated into a single order book, and they are automatically executed through matching offers.
There are dozens of ECNs available, such as Currenex, Atriax, STRK, ARCA, and ATTN. These platforms aggregate order markets from various financial institutions, providing clients access to them. For instance, Currenex serves around 40 leading banks and large corporations requiring various currency exchanges.
ECN broker – who is it and why is it needed?
ECN brokers are intermediaries that utilize ECN technology to serve clients. They do not contribute their capital to the liquidity pool, thus avoiding conflicts of interest. Their profit comes from the traders’ success, as higher trading volumes result in increased broker earnings.
ECN brokers aren’t suitable for everyone due to their higher entry requirements. Retail clients dealing with ECN brokers often require a minimum position size of 0.1 lots. If they exclusively cater to institutional traders, investors, and large businesses, the entry threshold may be even higher.
Traders considering ECN brokers should note that such brokers often facilitate trading only in currency pairs, excluding CFDs. If you’re interested in currency speculation and have a sufficient deposit, an ECN broker might be the right choice.
One key distinction of ECN brokers is their fixed commission. These brokers do not participate in executing positions; instead, they consolidate orders in a shared order book. This allows traders to encounter fewer instances of inflated spreads during market calm.
The difference between the bid and ask price usually widens when liquidity drops or pronounced trends emerge, which is relatively rare given the high liquidity of currency trading.
Rating ECN Brokers
Finding a genuine ECN broker for retail Forex trading can be challenging. While several brokers claim to offer ECN services, it’s essential to verify their legitimacy. Many of these brokers practice NDD (No Dealing Desk) execution, routing trades to liquidity providers without connecting to an actual electronic communication network.
A notable example is Alpari, which operates without a valid broker’s license due to its registration in St. Vincent and the Grenadines. Local regulators warn against unregulated Forex brokers, and this absence of a license would preclude Alpari from being considered a true ECN broker.
While some trading accounts from “kitchen” brokers may advertise ECN features, they are not genuinely connected to a real ECN. These could be manipulation tactics used by scammers.
Those who read reviews about so-called retail ECN brokers will likely recognize that these are essentially dealers. Dealing technology is acceptable for small traders but is not suitable when presented as real ECN trading, which connects directly to interbank transactions.
Is an ECN Broker Suitable for Retail Traders?
If you’re trading millions of dollars, frequently buying and selling currency, and need to withdraw funds regularly, connecting via a bank to a large ECN network or trading on a currency exchange like MMVB (Moscow Exchange) might be suitable.
However, if your capital is between $1,000 and $100,000, a regular forex dealer might be more cost-effective due to lower dealing fees. This makes them better suited for traders with smaller positions.
On the real Forex market, $1,000 to $100,000 is a relatively modest amount. Standard positions are typically $5 million or more, which can be expensive for irregular traders. The cost of operations alone can reach a minimum of $5,000 per month.