As one of the most popular and liquid markets, forex market provides and access to different exchange rates and trading conditions, as well as various trading tools. It is important to not get overwhelmed and choose the right broker that would fit your trading style and would help you to become a successful trader.
Along with the perfect regulated broker, there come different broker types that can also affect the productivity and the final result. Recently ECN forex brokers have become quite popular among traders due to the variety of advantages of a trade ECN account.
Trading on ECN platform, or trading through an Electronic Communications Network (ECN), allows traders to work directly with the market and send their orders straight to the liquidity pool, which will be filled at market conditions and according to the current volatility, without any other third parties involved. This type of network allows traders with buying/selling positions to find their counterparty.
Basically all the ECN forex brokers are only the middlemen to the traders’ transactions. The fees for these transactions are paid as commissions and markup spreads. Since the ECN market has a very high liquidity, traders have a chance to trade with the best prices and lowest spreads. That is why in order to sustain an ECN brokerage they charge a small commission per order. Such brokers make money with the trading volume of its clients.
How does ECN work?
Let’s have a closer look to understand how an ECN actually work and how orders are placed and processed. First, the trader creates an order using specific parameters. A broker forwards this order to the ECN it is connected to. There are some major ECN providers including Currenex (No.1 in North America), EBS (No.1 in Europe), IntegralFx, and LavaFx. The next step after the order has been submitted is finding a counteragent that would fit the set trading parameters.
The ECN system automatically makes the match as it is uses the main interbank liquidity pool to process all the orders. Most of the members of the ECN are major organizations like large banks, finance departments of top companies, state agencies, etc.
Before opening an ECN account one should learn more about all the pros and cons of trading with it.
Pros of an ECN account
Since the ECN network is just a middleman for the trades, the accounts are completely secured and they cannot be traced. By using the name of the ECN broker for the trades, the trader protects his own trading strategy.
ECN is also a synonym for the continuous trading, since such brokers provide their traders with the opportunities to trade during big events and important news. Through this continuous trading, traders can use the advantage of prices volatility. Another point that comes from this feature is that the change in the prices can occur quickly as the ECN prices are not constant. This also increases the price volatility.
Examples of ECN forex platforms – eToro, Alpari, XM, Avatrade.
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With ECN account traders can set the desired level of spread as spreads are very sensitive to any market change and any event. This is all possible due to a large number of traders.
The ECN trading is also very popular due to its reliability. As we already mentioned, ECN members are mostly banks and large corporations, which assures clients the broker can be trusted and he won’t lose his money due to some misunderstandings.
As we can see, there are some major strong advantages of trading with the ECN brokers that can help traders to make up their mind and switch to the ECN accounts. However, it is important to remember there is another side of the coin here, and probably just something anyone should consider before trading with the ECN.
Cons of an ECN account
ECN brokers charge commissions on every trade, both when opening and closing positions. Of course, experienced traders understand that this type of trading requires some large capital and are ready to pay the fees. However, sometimes the trader may get in trouble, when due to low spread the commission is actually higher that the earning.
Another con of dealing with the ECN is a requirement of a large capital. It is needed for opening orders at interbank rates. That is how traders can influence the market parameters. So the conclusion here, the ECN wasn’t made for small investors.
To sum up, the major benefits of using an ECN account are reliability, high volatility and low spread. ECN acts as a bridge between buyers and sellers and it is a transparent solution for most of the traders. It can be a great helper for different trading strategies, and it looks like with all the benefits it worth a shot.
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