ECN Broker: Definition, How It Works, Benefits, and Downsides

Since quotes come directly from liquidity providers, ECN brokers will allow you to access exclusive interbank rates. Together with Straight Through Processing (STP) and Direct Market Access (DMA) brokers, ECN brokers are classified as non-dealing desk types of brokers. They execute the clients’ trades by matching them with other clients and third parties who act as counterparties. ECN brokers are considered superior to dealing desk brokers because the ECN provides a direct connection between buyers and sellers. The forex market is, by dollar volume traded, the largest financial market in the world.

Grand Capital also regularly features additional promotions for new and existing traders. In the end, all that matters is that you get a good trade while using a broker platform that feels the most convenient and profitable. For some, ECN brokers are just that, while others would rather turn to the convenience of market makers. Finally, all that is left to do is for you to select a forex pair that you wish to buy or sell, enter your position, and wait for the system to match you to another trader that wishes to do the opposite of you. As mentioned, the forex market is huge, and you likely won’t have to wait long for the platform to find a suitable trader for you to work with. EToro is also among the favorite platforms of forex traders due to the fact that it is licensed and regulated by some of the most respected regulatory authorities around the world, including the CySEC, FCA, and ASIC.

What is a true ECN?

Nearly every ECN broker informs the prospective client that he will never have to worry about his broker trading against him in the backroom. Spreads may be tight, but transactional pricing may outweigh any perceived benefits. Instinet was the first ECN, founded in 1969, and is used by small brokerages and for transactions between institutions. It is widely used by market makers for NASDAQ trades, but individuals and small firms can also use it.

• However, the ECN broker will benefit from commission fees per transaction – this is a fixed, transparent commission.
• The first thing you need to do is select a broker that you are going to use.
• Many forex traders prefer ECN routing over another popular forex routing model, called market maker.
• We tested and verified the best ECN forex brokers for traders in the USA.

As for how an ECN operates, think of them as bridging the gap between large Tier-1 banks and orders from small retail traders. The technology that enables this linkage is fairly sophisticated and goes by the name of FIX Protocol (Financial Information Exchange Protocol). A good ECN has many arrangements with major banks and funnels your orders directly to their liquidity providers at the stated spreads. You may also see the term “STP” used by an ECN, standing for “Straight Through Processing”.

How To Get Started With an ECN Forex Broker?

Find below the list of Top recommended ECN Forex brokers (ECN + NDD No Dealing Desk + STP + DMA) and compare them to find the ECN broker that suits your needs for the best ECN Forex trading experience. Prices reflect real, live market conditions at that time with the ECN providing a level of privacy to those who need it, such as those executing large orders. Finally, the wider spreads may complicate the process of calculating break-even and stop-loss points for some investors. Additionally, its education library is loaded with different strategies and techniques for trading. If you’re just getting started learning how to trade forex, you’ll find a wealth of knowledge to get you started.

Any regulated brokerage firm will provide information regarding its regulated status on its website. Instead of making money off the bid-ask spread, ECN brokers usually charge a flat commission rate on each trade. It motivates them to deliver the lowest possible rates in a bid to beat the competition and attract traders. ECNs allow for clients or investors to be able to participate and facilitate trades in market exchanges, outside the normal trading hours.

eToro – Best ECN Forex Broker

The trading Brokers offering ECN Accounts and connection usually offer an interbank spread from 0.0 pips and charge a fixed commission per lot as a trading cost or fee. ECN is a non-dealing desk bridge with straight-through processing execution that enables execution in a direct connection between the parties via automated network. Where ECN Platform is Broker or Platform that performs its execution and operation via ECN. One of the biggest drawbacks to using an ECN is the price to pay for using it. Typically, the fees and commissions for using an ECN are higher as compared to non-ECN systems. Per-trade-based commissions can be costly and can affect a trader’s bottom line and profitability.

The SEC considers ECN brokers to be alternative trading systems because they match orders through third parties instead of directly on an exchange or with a market maker. If you have the capital to open an ECN account, there are a number of good reasons to do so. They bridge the gap between tier-1 liquidity providers and small participants in the market.

The Best Forex Brokers in the USA

Another way to ensure that you’re dealing with a genuine ecn broker is that ECN brokers do not present traders with the problem of requotes. Another potential benefit of ECNs is that they’re open when stock exchanges are closed, giving investors additional trading hours. “This provides a chance to react to new information that arrives outside of hours when exchanges are open,” Fink says. Just beware that “market quality deteriorates rapidly after exchanges close, meaning it is more expensive to trade at these times.”

To open an ECN trading account, simply create an account at one of the many ECN trading platforms available best suited to your needs. ECN accounts are typically considered more favorable for the trader as they tend to offer tighter spreads. In contrast, dealing desk brokers serve as the counterparties on the other side of the trade. This creates an apparent conflict of interest, where the clients are disadvantaged. The only way to make sure that a forex broker is a true ECN broker is to make sure that you are trading with a regulated broker.

How much are ECN fees?

The platform offers seven trading platforms including MetaTrader 4 and 5. It offers educational resources, including video guides, for beginner, intermediate, and advanced traders. However, ECN brokers ask for a higher minimum deposit compared to dealing desk brokers. Most of them require a minimum trade size as high as one mini-lot rather than one micro-lot that is standard in the industry. An ECN broker is a broker or firm that uses ECNs to execute client trades.