What are the benefits of ECN brokers

 When it comes to the forex or currency market, you've probably heard the phrase — an ECN broker. Many people use these two words frequently without even realizing their true meaning. If you are just starting your journey in the currency markets, you might be curious to know about ECN brokers, who they are and how they can help you. This guide will provide you with detailed information about ECN brokers and explain the benefits you can get from doing business with them. let's start!

What is an ECN broker?

An ECN broker is a brokerage company that operates through the Electronic Communication Network to facilitate trading in the currency exchange markets. The ECN broker is responsible for passing your orders to the interbank market or liquidity providers. This means that your trades are constantly matched with the orders of other traders within the real market (which acts as an exchange to facilitate exchanges). There are many ECN brokers that you can open an account with, but before taking this step it is essential to make a comparison of different brokers across sites like EarnForex to help you make the right decision throughout your journey.

How does an ECN broker work?

ECN brokers make their revenue from the difference between the buying and selling prices (the spread). This means that it is in their interest for their traders to be profitable and active, as it will be in their interest as they continue to execute more trades. ECN brokers provide an aggregated list of the best buy and sell prices they get from liquidity providers such as financial institutions and major banks. The broker then matches the trades with the lowest spreads and the best available rates, regardless of the source of liquidity. All in all, it can be said that an ECN broker acts as a link between the seller and the buyer, and therefore has no interest in price manipulation, as it works in full capacity to provide proper leverage and guide the market in your favour.

About ECN Trading

ECN trading is like a bridge that connects small market participants with liquidity providers through an ECN broker. This bridge is built using FIX technology or the Financial Information Exchange Protocol. This technology automatically matches and executes the requested orders based on the best available prices.

Advantages of using an ECN broker

Here are some of the advantages of ECN trading compared to other trading solutions, which we list in the following lines but not limited to:

  • Instant Trade Execution — ECN clients benefit from instant forex trade execution. This ability is provided by making available live price feeds that are actionable with instant confirmations. Trading over the ECN reduces the risk of price maker intervention as all trades within the network are confirmed as soon as they are matched and executed. There is no re-quote or interference in the course of trading in any way.
  • Clients' Access to Liquidity — The ECN provides clients with the opportunity to trade within a liquidity pool that is distributed globally across many qualified and regulated financial institutions, which in turn offer competitive deals to attract deals.
  • Variable Spread — The ECN also provides access to variable spreads with no market maker or agent controlling the buying and selling prices. Working with an ECN broker will also give you the ability to access real market prices directly. Currency rates fluctuate continuously based on the forces of supply and demand, as well as volatility factors and other market conditions. This mode allows investors to trade on tight spreads between buy and sell prices, which can be less than one pip depending on the prevailing market conditions.
  • Automated Price Feeds — ECN trading offers clients the opportunity to access and connect to expert advisors, automated trading tools and risk management systems via live data feeds. Market data includes both competitive bid and ask prices that are available at a given moment. This means that the trading process will remain stable and disciplined while trading on live prices or testing the past performance of different strategies.
  • Maintaining anonymity — ECN trading is characterized by the anonymity of traders. This allows investors to benefit from neutral prices that reflect real market conditions via data feeds at all times. This prevents any bias against the client as a result of the use of any kind of trading tactics or strategies for the purpose of influencing current positions in the market.
  • Price — ECN brokers do not manipulate spreads, which is why when working with an ECN broker you will be assured that you are getting the best prices available at the moment.

How to find a real ECN broker
Finding a real ECN broker may not be an easy task, especially if you do not have the know-how to start the selection process. Here are some tips on how to choose the right ECN broker for your personal needs.
  • Legal Identification—As a trader, you have the right to ask your broker about their legal status and whether they actually operate through the ECN, in order to ensure that their services comply with the standards and regulations of the country in which you reside. Not performing adequate legal and regulatory background checks on the broker, may expose you to the risk of losing your money in the blink of an eye.
  • Order Limits — Trading order limits mean the maximum permitted number of orders that can be sent to the broker, together with the maximum order size and total volume of open positions, and other related restrictions. Under normal circumstances, a real ECN broker will not stop you from investing any amount of money, simply because the more you invest, the more commission it will get. If you feel that your broker is trying to push you to open certain trades, or to keep you away from other trades, it means that he is trying to direct you for personal benefits and this casts doubt on his legal status as an ECN broker.
  • Reliable updates — an ECN broker should be able to provide you with regular updates about everything in your trading account. A real ECN broker will keep you up to date with any issues that may not be clear to you, and will help you solve any problem you encounter.
ECN broker vs other types of brokerage firms
When we talk about the forex markets, there are three common types of brokerage firms that we can clarify in the following lines:
  • market maker
  • Broker without clearing house
  • Electronic Communication Network (ECN)
Having talked about ECN brokers, let us now compare them with other types of brokers in the market, such as market makers and no-clearing brokers.

market maker broker
Market makers in the forex market provide their clients with double quotes (two sides), which they get from one of the specialized currency dealers working alongside the clearing house within the brokerage firm. In the event of a transaction at one of the quoted prices, the broker plays the role of a counterparty to the transaction, i.e. buys on the supply side or sells on the demand side of the quoted price.

The main objective of the market maker is to capture a portion of the spreads and create sufficient trading volume on both sides of the market, in parallel with stimulating balanced trading volumes on both sides to avoid the risk of accumulation of exposure on one side of the market to counterparties from professional traders.

The market maker may also decide to offset trades immediately if it finds the client's position is large enough to move the market against it. Depending on market expectations and transaction volume, he may instead choose to add the transaction to the insider trading history.

Brokers without a clearing house
A forex broker without a clearinghouse (NDD) is called a brokerage firm that does not operate an in-house matching client's trades. Although this may seem bad at first glance, in fact it provides traders with some of the best quotes obtained from many liquidity providers. This mechanism helps to give the non-clearing house forex broker access to the interbank market. Liquidity providers cooperate with NDD class forex brokers by giving them the best rates available in the market. The broker then executes the trades of its clients by matching the clients' orders with the prices available from the liquidity providers. Brokers usually charge a commission or increase the spread to make a small profit on each executed trade.
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