Why do people choose an ECN Forex broker over a regular one?

Why do people choose an ECN Forex broker over a regular one?

The forex trading market has various types of brokers. The services and products a broker provides depend on the type of broker they are. They include ECN brokers, STP brokers, Dealing Desk brokers etc. STP brokers are the normal brokers that are considered as intermediaries between dealers and liquidity suppliers, which are organizations that offer trading resources.

An ECN broker on the other hand is a forex expert who makes use of electronic communication networks (ECN) to provide direct access for their clients to other financial market participants. Since ECN brokers combine price quotes from many participants on the market for their clients, their bid/ask offers are generally tighter than what is available for the clients. ECN brokers are mostly desk brokers who don’t deal. This implies that they don’t give order flow to the market makers. Rather, market participants are electronically matched in trade and pass their requests to the liquidity providers.

The fact that an ECN broker only matches trades between market participants implies that the broker cannot trade against the client. Which is an attribute of unethical forex brokers. Since ECN spreads are smaller compared to those used by regular brokers, transactions are charged a fixed commission by the ECN broker. They facilitate trade for interested traders throughout the electronic communication network. An ECN representative encourages exchanges for intrigued financial specialists over the ECN. Working with an ECN broker is relatively cheaper than working with a regular broker. There is also extra trading time available using an ECN broker, because of the way ECN operates.

Understanding the ECN

The ECN gives an electronic framework to investors to meet up and trade. It does this by giving access to data with respect to orders being entered, and by encouraging the execution of these requests. The ECN is intended to match the present buy and sell requests in the trade. It also provides prices mirroring the most noteworthy offer and lowest ask recorded on the market.

ECN broker vs STP broker

This next point is mostly with regards to trading against the client’s position. There are a number of cases where the regular trader opens a position which is exactly the opposite of the client’s positions to benefit from the client’s loss. In situations where a trader opens a long (buy) GBP/USD position, the broker, after delivering the position to the liquidity provider, opens the exact opposite of that position for a short GBP/USD (buy) for the same size. For this reason, many traders who have lost a lot of money because their broker trades against their positions wonder if ECN brokers act in the same manner or not, or what are true ECN brokers like? and how does the network operate? So they can turn their losses around working with ECN.

A majority of regular brokers trade against their clients’ positions because they make huge profits from such practices. For example, if a dealer loses from the previously mentioned exchange, a broker will make huge profits from it, however, if an exchange is effective, the agent will lose money.

Advantages of working with an ECN broker

By using an ECN broker, the trader is permitted to work beyond the standard trading hours. This point is very vital for those who are either very busy and can’t be active during the regular trading times or those who prefer a more flexible option. Further, the many spreads that are available on the STP spreads are smaller, working with an ECN broker, what’s more, is that the commission and fees for their services are relatively cheaper compared to a regular broker. The aspect of anonymity is also effective when working with an ECN broker, thus investors are not worried about their privacy and also for traders making huge transactions.

Because of how information is transmitted, one aspect that many consider as a benefit working with an ECN broker is the price feed transparency. And all the brokers have access to the same trade and feed at the exact price that is given. For easier analysis of trends within the market, an amount of the prices history is available at each given time. This process makes it difficult for the prices to be manipulated, as current and past data are readily available, making it difficult for investors to be scammed. Also, no dealer has a specific trader has an added advantage over the other, as they all have the same level of access to data.


Updated September 13, 2020

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